The insurance industry is chasing growth mainly through acquisition and sometimes by innovative product development in an effort to survive in a tough marketplace, top executives at the World Insurance Forum said yesterday.

The drive to succeed and capture customers is behind recent acquisitions like the $1 billion purchase of NAC Re announced Tuesday by Bermuda-based XL Capital Ltd., and in last year's Berkshire Hathaway $22 billion stock swap for General Reinsurance Group.

Low revenue growth in the traditional insurance markets -- if at all -- is driving companies to consolidate within and outside the industry, XL Capital Ltd. director Michael Butt said in summing up the theme running through a three-hour opening panel discussion he moderated.

The panel was discussing the adjustments the industry is making in response to globalisation, and the increasing use by clients of alternative ways of covering their risks.

"Growth through acquisition is definitely the main trend in the industry,'' he said. "You can't grow by writing business so you have to grow through acquisition or through convergence -- which is acquisition outside the industry into the banking and financial sector. The challenge is to make the scale work.'' Another thread running through the discussion was the need for insurers, reinsurers and brokers to respond to market forces, something they have been slow to adapt to in the past.

XL Capital president and chief executive officer Brian O'Hara said companies are going to have to go big to meet the needs of their large, global clients.

Size is necessary in order to service such clients.

AON Corp. chairman, president and chief executive officer Pat Ryan said globalisation is forcing the acquisitions.

"Scale is absolutely critical in globalisation through acquisition,'' he said. "We think the strategy is sound,'' Mr. Ryan said. "It's in the execution, the cultural clashes in cross-border mergers that's the challenge.'' Scale and globalisation brings value to the client. Size allows a company to fund resources, service clients anywhere in the world they may have operations, and gives a deeper and broader knowledge of the marketplace.

"Scale managed correctly gives the shareholder value,'' he said. "You have to have the scope to be where the client wants to be.'' On the downside of the size equation is not getting the merger right.

CNA Insurance Cos. chairman and chief executive officer Dennis Chookaszian said getting bigger can lead to disaster if not managed correctly. He noted that the main pressure is on mid-sized companies to grow. On one side these companies are challenged by the smaller niche players, while the larger companies are stealing their global customers.

Insurance industry grapples with consolidation He likened the insurance industry of the future after the shakeout to a barbell shape with concentrations on either end of the spectrum and very few mid-sized companies.

"The squeeze is on the mid sized firms,'' he said.

Swiss Re America chairman, president and chief executive officer Heidi Hutter said companies should not pursue acquisitions just to be larger. There must be a compelling reason to grow.

"Scale in and of itself is not a virtue,'' she said. "The compelling reason to buy and grow in the insurance industry is done on the rationale that there is a diversification of risk and that you have to have the capacity to do large deals.'' Swiss Re's Heidi Hutter Much talk in the panel was over the area of convergence between insurance companies and the banking and financial firms. In some areas banks have been able to compete and do a good job of marketing life insurance products. In other areas the record of convergence has been spotty, Mr. Ryan said.

"It's clear banks can sell life insurance,'' he said. "In other areas with commercial banks and investment bank it has been a mixed bag. It works or it doesn't work in some cases. Personally I believe in cross selling. Cross selling is going to create organic growth, but I have yet to see successful cross selling. It will be done. I don't know who will do it effectively.'' Scor Group chairman and chief executive officer Jacques Blondeau said it's going to be difficult to find synergies between insurance companies and banks.

He believes instead technology such as the Internet is going to give more choice to more consumers.

"The development of new technologies is going against convergence and one-stop shopping,'' he said. "You have multiple channels of marketing, whether it's the telephone or the Internet. Consumers are going electronic.'' In the reinsurance world the story is different.

Ms Hutter said she believes convergence is going to be a major force in the marketplace. Insurance is really a swap of taking in a fixed premium and paying out a variable claims she said. The industry is now growing beyond taking in a simple hazard risk and looking at other factors. More and more reinsurers are developing products that allow participation in capital risk.

"Integrated risk management is really happening,'' she said. "We are looking at all the components of risk. Asset liability management is already happening.'' Mr. O'Hara said convergence is happening with sophisticated and big corporate clients. Insurers and reinsurers have the ability to do a better job of taking advantage of convergence than the investment banks since they better understand risk.

Companies like Lehman Brothers and Goldman Sachs which have set up Bermuda based operations to transform reinsurance risk into the capital markets are going into an area they don't really understand.

"The investment banks don't really take real risks,'' he said. "They play with other people's money... Those coming into our business are naive about the risks.''