The fallout from the turmoil on the global markets will result in less competition for Bermuda reinsurers from the capital markets.

That is the view of XL Capital Ltd. chief executive officer Michael McGavick, who believes a combination of factors will drive reinsurance rates higher next year.

On a panel at the Standard & Poor's / PricewaterhouseCoopers Bermuda Insurance 2008 conference yesterday, Mr. McGavick was backed up by Marsh & McLennan chief executive officer Brian Duperreault, who said the difficulty in obtaining new capital in the current market environment would likely apply upward pressure on reinsurance rates.

"We have seen big increases in the cat bond market, but they are seeing negative effects from what is going on on Wall Street," Mr. McGavick told an industry audience at the Fairmont Hamilton Princess.

Catastrophe bonds offer attractive rates of return, but investors can lose everything in the event of the specific type of catastrophe for example a California earthquake that the bonds have been issued to cover. Mr. McGavick suggested that the demise of Lehman Brothers, an investment bank that pioneered cat bonds, had damaged the cat bond market.

"We're going to see changes in how derivatives are regulated in future," Mr. McGavick said. "That's one class of competitor that will be diminished."

The same applied to hedge funds that had plunged into the reinsurance market, the XL boss added, as many such funds were now "under pressure".

"That whole category is probably out of the game now," Mr. McGavick said. He described a scenario of increased cost of capital, increased reinsurance demand and diminishing capital markets competition.

"I don't see how that will not yield a significant increase in price," Mr. McGavick added.

Only this week, it emerged that CIG Re, a Bermuda reinsurer set up by hedge fund Citadel, had been closed to new business, after the fund suffered substantial losses during this year's turmoil.

Former Ace CEO Mr. Duperreault, these days speaking from a broker's viewpoint, said the problem of obtaining extra capital during the ongoing credit squeeze would force reinsurers to rethink their exposures.

"If you are writing business and have per-event reinsurance exposure, then you have to think: 'If there is another event, what would I be left with? Would I be able to continue to trade?'" Mr. Duperreault said. Some may have to scale down their exposure, because in the current environment, "you can't get money anywhere", Mr. Duperreault added.

During difficult times in the past, reinsurers had always been able to raise capital, but that was much harder now, he said. "The cost of capital has to drive prices up," he added.

The strength of the bounce back in insurance rates would be tempered by the effects of a "recession of significant proportions" and overall uncertainty about the future, the MMC CEO said, as insurance buyers carefully measured what they could afford to pay.

Ian Dilks, PWC's global insurance leader, said the seismic shifts in the financial world in recent months showed that the world had generally mispriced risk and that most people would naturally become more risk-averse.

"We have never been through this before," Mr. Dilks said. "We have never seen an asset failure. Most people are still getting to grips with this and what it means."

According to one report, Mr. Dilks said, the value of the insurance industry had fallen by 10 percent in the three months from the end of the second quarter to the end of the third. "In the short term, it will be difficult to recapitalise from any source whatsoever," he added.