influential role in the world financial risk management markets into the next millennium because of the Island's development of innovative solutions.

Mid Ocean Re president and CEO Michael Butt said: "This will require melding the necessary elements of traditional reinsurance, finite risk and financial reinsurance, finite risk and financial reinsurance, capital market tools and risk assessment technologies to produce the appropriate medium for effective risk management and control.

"But this will only be achieved on a professionally-managed capital base capable of providing the security and long-term perspective the buyers will seek and the returns the capital providers will demand.'' But Mr. Butt, writing in the Lloyd's List magazine Insurance Day, has concerns that European underwriting judgement is being over-ridden by a fear of losing established market positions.

Mr. Butt discussed the global trend toward consolidation in reinsurance, a restructuring that has led to mergers and acquisitions, creating market players that were more highly capitalised and more diversified in their spread of risk.

But he said that evidence to date does not support the view that such changes will lead to stability in pricing.

Other forces in the market, he said, which may act against such stability include: The potential involvement of capital markets; the disintermediation of smaller insurers with the largest risks going direct to reinsurers; and, the current relative profitability of the industry.

With increasing interest in partnering capital markets with (re)insurance strategies, Mr. Butt sees issues such as return on equity and strategies for the effective management of capital as taking on a different flavour for company bosses.

He wrote: "In the past, management has taken the amount of capital available as a given one, and has looked to underwrite to use that capital. With the development of closer linkages to the capital markets, return on equity will become a critical factor in driving the actions of management, as well as strategies for the effective management of capital.

"In the future, management will need to be capable of managing its capital base as well as it has traditionally managed the underwriting process.

"It will no longer be enough to plan to use available capital. Management will be required to evaluate how much capital can effectively be employed in the anticipated market conditions, and manage the level of its capital accordingly.

"There will be increased use of capital management models, share repurchase plans, special dividends, as managements learn better to control this important dimension of the game.''