established here by top US broker, E.W. Blanch, and which has been dormant since its Bermuda incorporation in June 1997.

The company's vice president in the capital markets group, Peter Crosby, said the new reinsurer, Blanch Capital Re Ltd., will be much more active in the future, although it will remain strictly an intermediary, and take no form of market risk.

Blanch Capital Re was set up as the intermediary by which the company could issue capital markets products, such as catastrophe bonds, from the reinsurance market.

The company is designed to promote securitization of reinsurance risks and also push certain capital market risks into the reinsurance market.

Legislation before Parliament will allow the company to move more freely between the financial markets and the reinsurance markets, such as that provided for other recent arrivals, Lehman Re and Arrow Re.

The Blanch Capital Re Act Ltd., 1998 provides correct classification for a financial instrument that allows it to be reinsured with a reinsurance agreement. It provides more flexibility for transactions.

Mr. Crosby said, "As part of the original charter, we would not be taking risk through that entity. By default, anything that we enter into is going to be an intermediary type transaction.

"If that is issuing cat bonds on the one side, and reinsuring them through the reinsurance market on the other, very similar to a lot of the deals that are being done out there, that's something that we could do quite easily.

"There are other derivations where firms have taken capital markets risk into the reinsurance market and basically transformed a financial instrument into a reinsurance instrument.

"Those are the situations that the Blanch Capital Re Act is meant to allow for, so the company can promote that type of business.'' The concept of moving reinsurance risks to the capital markets has been slow in taking off because of the softness in reinsurance pricing.

Mr. Crosby said, "The other side is taking capital market risks and putting them into the reinsurance markets. And with the liquidity crisis from the capital markets, particularly around the middle of the year and in recent months, you've seen more situations where people have taken strict capital markets risk, credit risks, and delivering that to the reinsurance market.

"We would expect to see that type of business continue at an increasing rate over time.

"It could be derivatives or some other form of financial contract that are being transformed into reinsurance contracts or an insurance policy.

"One of the instruments we are working on right now is a weather derivative.

The market has developed over the last year or so. The first trades were done in 1997 and the market was driven by energy companies and utilities that are trying to buy protection over certain periods of time against milder winters for example, where there would be less of a demand for energy.

"By buying protection against such a mild winter, it provides some type of hedge to cash flows.''