A significant insured catastrophic loss may not fix the soft market in the reinsurance industry, a ratings agent has said. He had doubts that such a development would lead to an enduring hard market.

In fact, John J. Kriz, managing director, financial institutions with Moody's Investors Service, said, "It may not necessarily mean rates will harden.'' And he also held out little hope that the securitization of risks will provide more capacity.

Mr. Kriz said, "Securitization seems to be the dog that won't hunt. I have to believe, with some faith in efficient markets and capitalism, that if it was easy to do, it would have happened by now.

"It hasn't happened, so I must believe there is some very good reason why, with all of the time and talent that has been spent on it. So, from a near term prospect, it doesn't look like that is going to provide capacity to cedants.

"There is such ample capacity in the marketplace that even if there is a significant catastrophe and it has a positive effect on rates, will this be the demarcation line for a secular shift toward an enduring hard market? It does not seem so.'' Mr. Kriz said, "The types of securitization that has been suggested as a solution to some of these often uninsurable risks, is not there. As far as futures, and so forth, it has not taken off and I doubt it ever will.

"The futures market is a bulk market, trading of bulk risks. Catastrophes is a bespoke market, an over the counter type market. The flaw is you are using a bulk solution for a bespoke problem.'' Said Moody's senior analyst, financial institutions, Perry De Fontaine, "Insurance organisations are typically still primarily an underwriting function. When you are dealing with the securitization vehicles it is really an investment, or capital vehicles. There is a lack of understanding of the vehicle that is really preventing a lot of plans from taking off.'' Moody's sees a growing line of business for primary insureds in liability.

Said Mr. De Fontaine, "We see more industry diversification into other lines and other expertises, and some mergers, like what we've seen with ACE and Tempest. The trend towards diversification makes some sense especially if for example, the property cat market sees a continuing decline in rates.'' Mr. Kriz speculated, "You would expect the diversification to continue for a number of years. Also the ownership structure is interesting because some of these Bermuda insurers were started through investment by large, established institutions who are investors with time horizons.'' Mr. Kriz said that issues of future ownership of Bermuda companies will be sorted out within the next few years as some founders seek to move their capital to other investments.

"Some of those horizons have been reached or will soon be reached. They are looking at their exit strategy, their equity stake and options that may be available from trade sales to private sales to company buy backs.'' Moody's is the oldest rating agency, founded in 1900 by John Moody, who invented the credit rating system. Ratings began being issued in 1909, focusing on US railway bonds. The first office outside the US was opened in 1919 in London.

Moody's rates the Bermuda Government's ability to repay its debts and also provides services to Bermuda companies, such as Mutual Risk Management Ltd.

and Oil Insurance Ltd. Their visit here is also a learning process about Bermuda.

Said Mr. Kriz, "Moody's has a global franchise rating debt instruments, preferred stock, short term debt which is primarily commercial paper in its various forms around the world.

"Our group is an insurance group, we have a system of insurance financial strength rating, which is in effect a solvency rating to the extent that it is our views on the ability of a given insurer, legal entity, to meet policyholder obligations.

"It's a policyholder credit-type rating, versus a debt instrument. So we have that insurance financial strength rating scale. Depending on the credit itself, we could rate all of the above or one of the above or some combination in between.

"We've been asked by brokers, cedants and insureds to do what we can to expand our rating and research coverage here. We get many questions from key constituents on the reinsurance market place, as well as on the role and status of Bermudian firms particularly.

"We find a great deal of growing interest in Bermudian companies, which speaks to the success they've had in establishing themselves in the market place, often starting from square one.

"Bermuda is a permanent and serious part of the reinsurance landscape. The prospects for the continued value of proposition for Bermuda is good. One of the value of propositions is underwriting properly, which separates the wheat from the chaff.'' Said Mr. De Fontaine, "Bermuda companies are seen as creative problem solvers. They deal with real problems that can't be solved in what are considered to be traditional markets. "The best and the brightest come here to deal with some difficult lines.''