HE Bermuda reinsurance industry's success in attracting vast infusions of new capital for start-up firms highlights major competitive shifts under way in the world-wide reinsurance market,reported yesterday.

In an article entitled "Men in Shorts Join The Fray", the internationally respected business and political magazine said the slew of new reinsurance operations that set up here after Hurricane Katrina devastated America's Gulf Coast demonstrated that established industry leaders in the UK and Europe faced increasingly fierce competition from Bermuda.

"I'm a long way from Hampshire," Robert Childs, chief underwriting officer of Hiscox, an insurance syndicate at Lloyd's of London, and head of a new company it has just set up in Bermuda, told the magazine.

"Hiscox is one of a string of firms to set up shop recently in the British Overseas Territory, nearly 600 miles off the coast of America, which has emerged as an important force in the global reinsurance market.

"We cannot avoid Bermuda," Mr. Childs told the magazine. "We've always needed to be at the bazaar."

The competitive threat from Bermuda was acknowledged last week by Lloyd's itself, which unveiled a new strategic plan (belatedly, in opinion) to counter rival centres.

Lloyd's is not alone: Germany and Switzerland, two other giants in reinsurance (the business of insuring insurers), are watching Bermuda closely too.

Although the island has been a rising force for 15 years, thanks largely to a favourable tax climate, it has had an extra boost lately thanks to billions of dollars of new capital. Much of this has come from hedge funds and private-equity firms that entered the market expecting prices to rise after Hurricane Katrina.

The inflow comes despite stinging losses for some existing Bermudian reinsurers. Their balance sheets were pounded by last year's big storms, which are likely to cost the industry world-wide at least $55 billion.

Some of the factors that account for the island's latest boost ? the arrival of those new investors and its light regulatory touch ? have led to calls for the closer scrutiny of a huge but poorly understood industry.

A report published on January 23 by the Group of Thirty, a collection of heavyweights in global finance, aims to get beyond what one participant called "an air of mystery" about reinsurance. The group notes how important reinsurance is in the wake of catastrophes, such as the terrorist attacks of September 11th 2001 and last year's hurricanes.

The report answers its most serious question ? might this big, relatively opaque industry somehow destabilise the global financial system? ? in the negative. However, it points to several areas for improvement, including consistency in regulatory supervision, transparency, risk management and the calculation of capital requirements. It argues that the trend towards securitisation, in which insurance risk is transferred to capital markets, underscores the need for all this.

The surge of activity in Bermuda ? it lies behind only London and America in writing brokered business, and offers other forms of coverage as well ? has made the industry more "atomised", as some put it.

Many firms on the island offer specialised "monoline" coverage, which focuses on narrow sectors such as energy and marine reinsurance. Investors, therefore, are taking on more concentrated risk than they do with the industry's giants such as Munich Re and Swiss Re, which are broadly diversified.

writes a dazzling assortment of bespoke direct insurance as well as reinsurance (which is roughly a quarter of its total). Now that General Electric's reinsurance operations are being sold to Swiss Re, America has only one big reinsurer ? General Re, owned by Berkshire Hathaway ? although America is the biggest source of claims.

"Despite the risks, Bermuda has been remarkably successful at attracting equity investors, which is one of the broader industry's main difficulties. Nearly a dozen reinsurance start-ups have been registered on the island in recent months," said the magazine.

"Several firms have opened for business with as much as $1 billion in new capital. They are focused on parts of the market where price increases are expected, such as marine and energy reinsurance. Low taxes are Bermuda's biggest draw. The vast majority of business written there is from America, where insurers are taxed on the reserves they amass to prepare for large payouts. Increasingly, though, European and Asian business is flowing to Bermuda as well."

Bermuda's appeal is demonstrated by its wide array of backers, which include hedge funds (Citadel Investment Group is backing New Castle Re), private-equity funds and insurers (Trident III and Chubb are behind Harbor Point Re). Aquiline Capital Partners, the private-equity firm of Jeffrey Greenberg, former chief executive of Marsh & McLennan, a big broker, is also backing a Bermuda start-up.

of caution is offered by the big rating agencies, though, some of which express worries about risk concentration in categories with exposure to extreme events. The response in some cases has been to increase capital requirements.

To be sure, there will be consolidation among Bermuda's "class of 2005" ? the island's regulations allow capital to leave almost as easily as it enters. But, says Bob Hartwig of the Insurance Information Institute, an industry group, "Bermuda is here to stay."

Bermuda was under pressure several years ago to tighten regulatory standards, but he and others say it has done so satisfactorily. The attractions remain.

"Reinsurance is a very capital-intensive business," noted Mr. Childs of Hiscox. "Hedge funds have a lot of capital, and as margins get thinner elsewhere, they've looked here."

None of this means traditional centres such as London need be deprived of a future.

"If you want to establish a long-term, successful business in international insurance and reinsurance, Lloyd's still has unique advantages," said Miles Trotter, of A.M. Best, a rating agency.

Investment in reinsurance, however, is a gamble that may not pay off for everyone, partly because the flood of new capital has made competition even more intense.

Although rates have risen in areas of the American market most affected by last year's hurricanes, they have not risen across the board ? contrary to what many expected last autumn.