The ability to protect investment performance is the key challenge facing Bermuda's insurance industry during the current financial downturn.

The CSFI's latest Insurance Banana Skins survey reveals that in what is proving to be one of the world's biggest business crisis in decades, the Island's insurance leaders are focused on macro-economic outlook and its impact on insurers, as lower business volumes put strains on profitability and capital across the globe, the availability of capital and volatibity in the equity markets.

Similarly, top of the world insurance industry's agenda was the economic outlook, capital availability and equity market turbulence.

The global survey, which was carried out in association with PricewaterhouseCoopers (PwC), was based on more than 400 responses from 39 different countries and showed how respondents rank the risks facing the sector.

The results were in stark contrast to the previous survey in 2007, when the top priority was operational risks, such as too much regulation. That year, market risks barely featured in the top ten - signifying a major shift in risk perceptions due to the crisis.

Bermuda companies responding to the survey expressed more concern over reinsurance security than their onshore peers, against a background of seriously impaired balance sheets worldwide. They also retained their worries about "managing the pricing cycle", placing it seventh.

PwC Bermuda insurance partner, Colm Homan, said that although concern about too much regulation slipped down the rankings (to eighth place in Bermuda, fifth globally) it remains a big issue in all the major markets.

"Insurers fear a regulatory crackdown in the wake of the credit crunch," he said. "Insurance executives are also worried that the industry will be made to share the cost for what is essentially a banking crisis."

Doubts over the quality of the insurance industry's risk management (six in the global ranking), and its exposure to complex risk instruments (eight) increased from the previous survey.

There is a strong feeling among the respondents that the industry was not equipped to enter these markets and will have to "go back to basics".

But Caroline Foulger, PwC Bermuda insurance partner, said the Bermuda response reflects greater confidence among the Island's insurers in their risk management processes.

"In general, the Bermuda (re)insurance industry companies have mostly performed well in the risk management arena in this time of broad economic challenge, compared to the banks and some of the global insurance companies," she said.

Meanwhile concern about the quality of management in the insurance industry has been overtaken by more urgent risks, dropping from third place to thirteenth (10 in Bermuda).

Globally, there was a sharp fall in environmental-type risks. Natural catastrophes and climate change, which were in the top ten in 2007, are now ranked in the 20s. This is partly because there have been fewer major events, but also because the industry sees risks in this area becoming more manageable.

Ian Dilks, global insurance leader at PwC, said: "The industry is now operating in the worst economic downturn seen in decades which has led not only to a major reappraisal of key risks but also a concern that the industry is not as well placed to deal with them as it once thought and therefore a change in risk appetite.

"Responding to these challenges and embedding good risk management practice across organisations is critical if the industry is to emerge from this cycle in a better position.''