management'' has moved to position itself well for the future according to a Moody's Investment Services report.

The new report on Bermuda's reinsurance and insurance market is a vote of confidence by the investment rating agency in the recent moves by the Bermuda-based industry to diversify and expand overseas.

The industry's history of innovation together with a flexible regulatory framework has helped that repositioning as insurers and reinsurers expand their reach in existing and new business segments, the report states.

Diversification, through a combination of mergers and acquisitions, is the most pronounced trend in the market today.

"This parallel of risk diversification and capital management only highlights the fact that the Bermudian (re)insurance market itself is largely founded on the principal of opportunistic capital management,'' the report states.

But the report's authors adds a warning that the traditional monoline specialist base holds a danger for the Bermuda industry.

"The flip side of innovation, however, is the assumption of unknown risks -- and occasionally the cannibalisation of profitable in-force business -- and it remains to be seen how the Island's institutions will fare in operating in a broader global competitive marketplace,'' Moody's finance, insurance and securities credit officer Alan Murray states in the report.

"Furthermore, the recent proliferation of new on-and-offshore tax-advantaged and domiciles for captives and special purpose entities may encroach on Bermuda's historically unique position.'' Mr. Murray, who is based in New York, commends Bermuda's flexible tax and supportive regulatory environment for helping attract the intellectual and financial resources responsible for the 10 year steamroller growth of the industry.

The formation of captive insurers, excess liability reinsurers and insurers, finite risk insurers, and monoline property catastrophe reinsurers are all evidence of the industry's opportunistic flexibility.

"To this day Bermuda continues to provide an environment that is conducive to product innovation and market responsiveness -- a recent example being the establishment of several insurance exchanges and securisation facilities,'' Mr. Murray stated.

He added that the industry owes its continuing success to talent, location and good regulation.

"It will take some time before a consensus develops on the effectiveness of the range of approaches currently being pursued by the Bermuda reinsurers,'' he said.

Innovation, tax flexibility and a helpful regulatory environment have been the impetus behind the local insurance industry, according to investment rating agency Moody's. Ahmed ElAmin reports.