to adhere to underwriting discipline, a local reinsurer has said.

President and CEO of IPC Re, John Dowling, expressed concern that market competition and rating softness has led some reinsurers to write some business that may have been unwise.

Local market executives believe Bermuda reinsurers, together with most of the international market, have practised discipline in their underwriting. But there are others which have not.

"The future of this business is about losses,'' Mr. Dowling commented. "We have gone through a relatively benign period, although we've been very lucky.

Since 1994, we've had Northridge, and one year later Kobe. We've also had Hurricane Fran, the fourth most costly hurricane in the history of the US.

"Each one of those incidents could have been that much more severe, causing extreme pain for the world's capacity. So the future of the market depends on maintaining strong discipline.

"But there are signs that some of the discipline that came into being following the demise of so many companies is beginning to weaken.

"The key, from our perspective, is maintaining the discipline we were founded with. It is the lesson of Hurricane Andrew in 1992 and losses in the 1980s in the UK.

"There are signs that that discipline is beginning to erode and I think that is very dangerous to the industry.'' Reinsurers have been forced to refuse a lot of such suspect business in the last two years -- probably walking away from a lot more than they could ever have imagined. But it also has meant new decisions on unused capital.

One trend with the Bermuda companies is the returning of excess capital to shareholders, through high pay-outs in dividends, special dividends and share buybacks.

President and CEO of Mid Ocean Re, Michael Butt, said the market is unlikely to recover until there are either underwriting losses of sufficient substance to seriously undermine profitability, or there is sufficient withdrawal of capital for other reasons.

Mr. Butt said: "Some companies are buying back a lot of shares and distributing capital and therefore are not planning to over-compete for business in a declining market.

"What is going to cause underwriting losses is either that the margins on the whole book of business become unacceptable because of incremental losses, or there are going to be some major losses to run it round again. No one I know is wise enough to tell me if, and when, that's going to happen.

"Until further notice, it is going to remain a competitive business. Those businesses that have the best margins will be those who have the lowest expense ratios and combined ratios and they will be hurt last.

"Underwriting standards in certain sectors are being dropped, without a doubt. People are not asking for the same level of information that they used to in a harder market. All those signs of a softening market are beginning to come through.'' CAT Ltd. saw improvements in its premium growth during the January renewals and believes that its net premiums written and net premiums earned in 1997 will eclipse those of 1996.

Said president of CAT Ltd., Paul Hasse: "We did grow this January over last January and there are still opportunities in the US and around the world.

"But our book has always been different from others, because about 60 percent of what we do is non-traditional, and so we tend to see opportunities and get involved in programmes in different parts of the world that others perhaps don't see.

"But our view of the traditional market is that there will remain pressure on pricing, particularly within the states, based on the fact that there is still limited capacity in some regions of the states. People are using models and I think they do have an idea of what the exposures are. But there is a bottom to what responsible reinsurers will charge.'' Some of the original Bermuda reinsurers have broadened the types of business they are writing, while others have remained steadfastly with the original lines.

While some companies have looked to simple geography to diversify a book of predominantly property catastrophe, others have actually moved to the underwriting of non-catastrophe lines.

Mr. Hasse concedes only time will tell which is the best strategy. Not surprisingly though, some of these other lines have not been immune to the high competition and softness that has become pervasive across market lines.

Said IPC Re's Mr. Dowling: "If you are going to diversify into other lines of business, you have to be very sure that they are going to produce the same returns that we are currently seeing with property cat.

"But you have to only read the newspapers to see that many other lines of business are under the same -- or greater pressure -- on rates that is the property cat experience. So you have to be sure that by going into these other lines, that you are actually adding value to the business, rather than taking it away.'' Chairman, president and CEO of LaSalle Re, Victor Blake, said: "Everybody gets very excited because the rates have gone down again. But we are used to cycles in this business. Good profits over a few years lead to a natural turn down in rates.

"But good experience causing pressure on rates is probably the best reason for such pressure. You've made a lot of money. You need to make good money in the good years to pay for the high losses in the bad years.

"We become quite sanguine about the inevitability that you get some correction in rates. These rate reductions came off previously unknown heights when these Bermuda reinsurers were formed after Hurricane Andrew.

"The cat companies in Bermuda have made huge returns for their shareholders and the customers want some relief from the cost of the premiums over three years.

"But because the cat product makes so many headlines and these companies were newly-formed by venture capitalist money, there is a great deal of focus on the subject and misunderstanding by some that rates will continue in free fall.'' A classic example of firms that remain predominantly in property catastrophe is PartnerRe, whose executive vice president, Graham Dimmock said: "If there was diversification that we could engage in that would make our shareholders more money, we would do it, providing we could do it in the same style that we use in our current business.

"But at present, we think to bring new capacity to markets which are already highly competitive is a bad business decision.'' Like a number of other Bermuda companies, PartnerRe has engaged in share repurchasing.

He said: "That may make us look rather cautious, but we think that is right for the long term value of our shareholders.'' Rate reductions were definitely more modest in some areas of the world than predicted for last year.

RenaissanceRe senior vice president, Neill Currie, said: "You can see, based upon actions over the last year or two, that these companies will return capital before they will use it in a way they think would be unwise.

"So rate reductions will only continue to a point where the underwriters feel it is still good business at those rates. Otherwise, they have proven that, instead of trying to write to that capital, they will return it. Or other companies have been diversifying into lines of business they think have good prospects.'' He said: "There are areas of the world more apt to see continued rate declines. There is more possibility for further reductions in those areas where demand is not as high. But the larger economic areas should see less possibility for rate reductions.

"The business is so different from what it was ten years ago. You now have a much better idea of what the appropriate exposures are, what the potential loss costs could be and how frequently they could occur.

"Underwriters are different, but they all should have a pretty good idea, with the computer modelling, what they think the loss costs are. The Bermuda companies have been quite disciplined.'' Global Capital Re (GCR) chief financial officer, Frederick Deichmann, said, "The coming year will be much like 1996 in terms of softening rates, barring a major event. People are trying to do multi-year deals and some fancy footwork. But there is not a lot expected that will be new in 1997.'' "But there are signs that some of the discipline that came into being following the demise of so many companies is beginning to weaken.

Cats stay disciplined "The cat companies in Bermuda have made huge returns for their shareholders and the customers want some relief from the cost of the premiums over three years.'' A classic example of firms that remain predominantly in property catastrophe is PartnerRe, whose executive vice president, Graham Dimmock said: "If there was diversification that we could engage in that would make our shareholders more money, we would do it, providing we could do it in the same style that we use in our current business.

"But at present, we think to bring new capacity to markets which are already highly competitive is a bad business decision.'' Like a number of other Bermuda companies, PartnerRe has engaged in share repurchasing.

He said: "That may make us look rather cautious, but we think that is right for the long term value of our shareholders.'' Rate reductions were definitely more modest in some areas of the world than predicted for last year.

RenaissanceRe senior vice president, Neill Currie, said: "You can see, based upon actions over the last year or two, that these companies will return capital before they will use it in a way they think would be unwise.

"So rate reductions will only continue to a point where the underwriters feel it is still good business at those rates. Otherwise, they have proven that, instead of trying to write to that capital, they will return it. Or other companies have been diversifying into lines of business they think have good prospects.'' He said: "There are areas of the world more apt to see continued rate declines. There is more possibility for further reductions in those areas where demand is not as high. But the larger economic areas should see less possibility for rate reductions.

"The business is so different from what it was ten years ago. You now have a much better idea of what the appropriate exposures are, what the potential loss costs could be and how frequently they could occur.

"The Bermuda companies have been quite disciplined.'' Michael Butt Victor Blake CONFERENCE CON BUSINESS BUC