be on its way over the next few months, according to Mr. James N. Stanard, chairman and CEO of newly-formed Renaissance Re.

Mr. Stanard said there is still a significant shortfall in this area of reinsurance despite new capital of almost $2 billion being pledged to Bermuda over the past few months.

"There's a lot of interest and a lot of capital which is looking at this market,'' he said. "Whether it will come in the form of new facilities forming or additional capital to existing facilities, I don't know.

"Even with all this new capital recently, that hasn't replaced the total capital that has left the market over the past two years.

"For a major East Coast hurricane, the cost to the insurance industry overall is over $25 billion and that has to be covered somewhere between the primary insurers and the reinsurance market.'' The limits on property catastrophe lines have fallen dramatically since the turn of the decade, he said.

He added: "Three years ago you could do programmes close to $300 million but, at April 1, 1993, the biggest programme was in the neighbourhood of between $150 million to $175 million.

"This April compared with two or three years ago, you have lost at least $100 million, if not $125 million, of capacity per programme.

"All the Bermuda facilities which have started up and their programmes and capital are not going to add up to the amount of capital that's been lost.'' Once Renaissance Re's backers, who include USF&G, had decided to set up the company outside the United States, Bermuda was the obvious choice as a domicile, said Mr. Stanard.

"We really did not consider other offshore domiciles seriously. Bermuda has the infrastructure, there's an established market here and it's easy to get to from the US.'' Despite the inherent level of risk associated with any insurance industry, Mr.

Stanard does not foresee problems for Bermuda such as those being experienced currently by the Lloyd's of London market.

"I doubt if you have a potential problem where Bermuda companies will leave themselves vulnerable to being blown out of the water,'' he said.

"I cannot speak for other organisations but my feeling is that these CAT reinsurance companies are going to be very professionally managed and are going to be state of the art at managing their exposure and spread. That's what we intend to do.

"I also don't think new capital will engage in irresponsible price-cutting. I don't think there's the potential for a major collapse unless you have irresponsible management or underwriting.'' Companies are using increasingly sophisticated computer models to assess risk in relation to their capital base, he said.

"They don't just take into consideration storms that have occurred in the past, but these models create hypothetical storms,'' he said. "They take into account storms which have never happened but could.'' How accurate are projections based on computer models? "I've been in the insurance industry for 20 years in the US and a lot of decisions got made based on reasonable projections and estimates,'' he said.

"It's worse when you're writing casualty because you're trying to predict what the court system will be doing ten years from now. Compared to everything else that's usually going on in business, these models are reasonable.'' Models used to predict the cost of a major storm such as Hurricane Andrew striking where it did proved to be fairly accurate, he said.

But he said there were three areas which took the insurance industry by surprise and caused the total insured loss to escalate unexpectedly: The compliance with Florida's building codes before Andrew struck was far worse than people had previously believed; The cost of building materials and hiring contractors escalated to an "unprecedented'' level after the disaster. "Contractors were just cashing in,'' said Mr. Stanard. "That's a huge, huge problem.'' Frequent rainstorms after the hurricane further damaged roofless properties and their contents, causing an extra layer of loss.

Hurricane Andrew caused the demand for property catastrophe reinsurance coverage to "skyrocket'', he said.

"Andrew was a wake-up call to many primary insurers about what exposures they had and the need to control them on a direct basis and through reinsurance,'' he added.

"Companies were under-reinsured and they did not realise it. Everybody recognises that Andrew could have been a lot worse if it had been 30 miles further north.

"Reinsurance premiums for property catastrophe have doubled since 12 months ago and, in some cases, have more than doubled.

"The policy rates have got to a lot more realistic level in terms of the potential that's there.

"The problem prior to Andrew was that people knew there was a theoretical potential for a huge loss but it had not been a reality. Andrew and some of the other catastrophes made them find out what that potential was.

"Primary companies in the US are now working to build into their rate business enough premium to cover these catastrophes. Before Andrew, the allowance for CATS in primary rates had eroded in the US.'' Based on previous experience, reinsurance premiums are likely to stay high for several years, he said.

"The last time there was a major US property catastrophe incident like this was in 1965 when Hurricane Betsy struck, resulting in a $500 million loss which, at the time, was a huge loss for the market.

"Policies went up over 1966 and 1967 and stayed up for five years until the early 1970s.'' Mr. James Stanard.