Will it succeed? With 34 employees Renaissance Reinsurance Ltd. is small in terms of number of staff, but the company deals in big events -- the massive losses that result when the weather turns rough and causes millions of dollars in damage to property.

Since it was formed in 1993 the company has been quietly working away developing its piece of the catastrophe reinsurance business from headquarters on East Broadway. Renaissance has become one of the top ten largest providers of property catastrophe coverage in the world by premium volume, and a leader in using computer modelling technology to its advantage.

In contrast to some of its competitors, no big pronouncements about billion dollar takeovers, or of some other company about to take it over have come from parent company RenaissanceRe Holdings Ltd. Yet.

In an interview RenaissanceRe executive vice president Keith Hynes and chief financial officer John Lummis said the group is taking a different strategy from the major players in the market. The company has more modestly entered the primary market through the launch of a start up in 1996, and then moved on to buy operating subsidiaries of Nobel Insurance Ltd. this year.

The question is whether RenaissanceRe can remain in the game as a small company among the larger, diversified players, whether it will have to alter course and engage in huge buyouts, or whether it gets swallowed in a takeover.

"Only time will tell which strategy pays off better,'' Mr. Lummis said. "In Bermuda we have been able to establish a very attractive position. We are a cat specialist who brings value to clients. We just have a different strategy.

I'm not saying you can't find things. We found Nobel. We have it (finding acquisitions) as a priority but it is not as much a priority as it is for these other organisations.'' Company executives said they do not want the RenaissanceRe to become distracted from its main business of providing property catastrophe excess reinsurance.

Excess of loss catastrophe coverage refers to coverage for insurance claims arising from large natural catastrophes, such as hurricanes and earthquakes, after a specified amount has been paid out by the client. That means operating subsidiary Renaissance begins paying money to its insurance and reinsurance clients when their claims, from all of the homes, business and properties that they insure exceed a set retained amount. The reinsurance Renaissance provides allows the primary insurer to stay in business and keep paying claims to those affected by a natural catastrophe.

Renaissance has eschewed the aggressive diversification strategies of its peers for what executives label as a "focused diversification'' into the primary market.

Key to the decision was the company's expertise in catastrophe modelling techniques. RenaissanceRe has invested about $8 million in a proprietary computer-based pricing and exposure catastrophe modelling system. It is built on many of the catastrophe modelling systems on the market. The system helps underwriters determine the risks and prices they are willing to cover in areas where natural disasters occur.

"We continue to have the best multiple model capability in the world, a key competitive advantage,'' the company boasts in its 1997 annual report. "As clients and brokers become more proficient in using these tools, it disadvantages reinsurers lacking multiple model capabilities. To us, information is a competitive weapon. We have built detailed files on the complete catastrophe reinsurance industry and we are confident that our information constitutes the best database in the world.'' RenaissanceRe is also a funder, along with other companies, in the Bermuda Biological Station for Research's Risk Prediction Initiative. The research from the project has helped RenaissanceRe adjust its catastrophe model.

In 1996 RenaissanceRe leveraged those modelling skills by creating Glencoe Insurance Ltd. to write commercial, catastrophe-exposed property business in the US. RenaissanceRe owns 80 percent of Glencoe. Last year the company incorporated DeSoto Insurance Co. to write homeowners insurance in Florida.

DeSoto began writing business this year.

And this year RenaissanceRe completed the acquisition of the homeowners segment of Nobel. In total Glencoe, DeSoto, and Nobel have about 300 employees in the US.

While its catastrophe expertise lies at the foundation of those moves RenaissanceRe executives also believe merger mania has driven acquisition prices sky high.

"We are not interested in being in every business,'' Mr. Lummis said. "We are interested in being principally in catastrophe exposure management. There are times to grow and not to grow. The valuations of insurance franchises are very high. We have a hard time making sense of some of these mergers. There will be time to grow. Things may change when there is more attractive pricing for acquisitions. It's hard to find good value today.'' Growth and acquisitions must not divert too much management attention and time away from the primary business. Glencoe began writing in the commercial property market in California, while DeSoto writes business in Florida. With DeSoto, which was built from scratch, the company decided to cover a niche, low value dwelling homeowners insurance -- homes under $100,000 in value.

"There was less competition in that niche and it's an area where you can make a reasonable return,'' Mr. Lummis said. "These are markets where we can use our cat model. Glencoe and DeSoto have grown nicely using our skills. The biggest question is how they are going to do in an earthquake or hurricane.'' Nobel was attractive as an acquisition because it had been a reinsurance client for three or four years. Nobel was attractive because it also wrote business for low value dwelling homeowners insurance in the US southeast, but did not write business in Florida, DeSoto's domain.

Staying strong in the big league Nobel's other businesses are commercial auto and general liability, and casualty insurance for the explosives industry.

"We are comfortable with their management style,'' Mr. Lummis said. "Nobel has been in a niche for 25 years. It complements the DeSoto home owner business. While Nobel is licensed in 50 states we don't see ourselves competing on a nationwide business.'' Mr. Lummis said catastrophe reinsurance, despite the lowering of rates and the subsequent decrease of volume of business, was still among the more attractive sectors in the market. RenaissanceRe in 1997 had net income of $139.2 million with gross premiums of $228.3 million, a 15 percent decrease from the previous year. Property catastrophe coverage through Renaissance was 91 percent of the company's gross premiums in 1997. Meanwhile Glencoe wrote $7 million worth of business in the same year. DeSoto began in January this year with 12,000 policies and an in force premium of $10 million.

"We have a very attractive business when we compare it to going off and doing other things,'' he said. "It takes management time and resources and capability away from the main business. In the near future we want to stay on the catastrophe side of the business and in reinsurance. We want to grow and nourish our catastrophe reinsurance business. On the primary side we want to put Glencoe, DeSoto and Nobel together. There is plenty to do putting these three pieces together.'' The company will remain open to other possibilities in the market when they become available of course.

"What we try to do is identify businesses that have attractive returns that Renaissance can add value to and aren't significant management time drains,'' Mr. Lummis said. "There are not a lot of opportunities that meet that criteria.'' All the strengths of RenaissanceRe begs the question of whether it's a takeover target. Rating agency Standard & Poors has labelled RenaissanceRe as an attractive acquisition target for the large multi-line reinsurers. Another S&P analyst told The Royal Gazette he believes the company wants to remain a niche player and is not on offer to the market. The challenge facing the company will be to maintain its position in the face of increased competition from the larger predators, and declining premium rates and profits. Exel Ltd.'s buyout of Mid Ocean Ltd. and ACE Ltd.'s acquisition of CAT Ltd. -- all Bermuda companies -- had turned clients into competitors thus potentially affecting Renaissance's bottom line.

Exel's president and chief executive officer Brian O'Hara said, when the company merged with Mid Ocean, he believed the game belonged to the large and the diversified.

"With size being increasingly important, scale is necessary to compete,'' he said. "Consolidation is going on at an ever increasing rate. There won't be any room at the table for small or medium sized companies.'' Renaissance is making a calculated bet that he's wrong.

Keith Hynes John Lummis