MONACO (Reuters) - The annual gathering of the global reinsurance industry in Monaco is an arcane, 50-year-old ritual of lavish parties and secret tete-a-tetes where the industry negotiates renewal contracts for the coming year.

But this year's get together, held around September 9 to September 11, showed clear signs that the reinsurance industry, in a state of change since the attacks of September 11, 2001, and Hurricane Katrina in 2005, is waking up to modern times.

Reinsurers - which take on large risks of primary insurers - have changed their industry in the last few years, fighting a reputation of volatile earnings and poor risk management.

Companies like Swiss Re and Munich Re have set up huge databases and employed dozens of doctors, geologists, climatologists and aviation professionals, turning themselves into research centers.

They have also solemnly pledged to avoid the boom-and-bust cycles that have in the past plagued their business by making sure their underwriting business is profitable, instead of trying to smoothe earnings out with investment income.

"The forthcoming renewal season is shaping up to be the most symbolic faced by reinsurers since 2002," rating agency S&P said in a report issued ahead of the meeting.

"How the sector behaves will be critical to its prospects for long-term success."

Reinsurers have often been prone to sell business below the cost of capital just to maintain top-line growth when start-up rivals based on Bermuda flooded the market with capacity when premiums were high after major disasters.

In Monaco, the behind-the-scenes industry lends itself a touch of glamour, setting up office in spacious hotel suites overlooking the jet-set's yachts in the port. Many of the participants flew in by helicopter.

The industry is famed for being clubby, a fact underscored when the collapse of the Twin Towers in 2001 brought to light contracts had only been agreed provisionally, leading to a protracted legal battle over the cost.

But the industry is now at the forefront of financial engineering and it has designed a new class of increasingly popular financial tools with which to spread the risk of disaster to financial markets.

Disaster bonds are paying a high yield, with the chance of losing the money in case of certain predefined catastrophes such as an earthquake or a hurricane, in which the issuers do not pay back the money.

With global warming increasing the prospect of hurricanes and floods, such insurance-linked securitisation may increasingly be needed and Swiss Re is predicting the volume of the paper to increase tenfold in the coming nine years.

It will help reinsurers absorbing the sometimes huge costs their business is confronted with.

Two years ago, reinsurers footed most of the bill when US Hurricane Katrina caused claims of more than $66 billion.

The sector also paid most of the $21bn cost of the September 11 attacks in 2001.

Apart from bringing their business more up to scratch financially, reinsurers have also changed in more subtle ways. Dress code, for instance.

"When I first came, everybody was wearing black suits, grey suits," said Adrian Ladbury, from the Business Insurance Europe magazine, who has been visiting since the early 1990's.

"Now they're all walking around (looking) slightly uncomfortable in chinos and polos," he said.