While some industry analysts see recent Florida insurancelegislation as a death blow aimed at the heart of the Bermudareinsurance marketplace, executives with mixed books of insuranceand reinsurance contend it's just a curve ball that the market canstill hit out of the park.

Indeed, with a year of record earnings under their belts,executives of 11 publicly traded Bermuda companies spent more timetalking about how they'll adjust their swings around both Floridaand a softening market to deliver targeted revenues and profits in2007 than celebrating their good fortune during earningspresentations earlier this month.

Approaches they described include:

o Increased focus on initiatives outside the U.S.property-catastrophe reinsurance market--in Latin America andAsia.

o Increased appetites for the U.S. excess and surplus linesbusiness.

o Options to wind up sidecars set up last year.

Several said they would also mine growth opportunities aroundand above the Florida Hurricane Catastrophe Trust Fund, while beingcareful not to give competitors a road map as to exactly wherethose prospects might be.

Just days before Bermuda companies started to publish earningsfigures, Florida Gov. Charlie Crist signed a law that industryanalyst V.J. Dowling later predicted would mean the removal of atleast $1 billion in premiums from the property-catastrophereinsurance market, along with a quarter of its profits.

Mr. Dowling, managing partner of Dowling & PartnersSecurities in Hartford, Conn., made his comments during ateleconference hosted by New York-based reinsurance brokerage GuyCarpenter.

David Priebe, head of the specialty practice group of GuyCarpenter, led off the discussion highlighting a provision of thelaw that roughly doubles FHCF coverage. The coverage--which was for90 percent of $18 billion in industry hurricane losses in excess of$6 billion--has expanded to a new maximum structure of 90 percentof $37 billion in excess of $3 billion, he noted.

Simplifying the math, Mr. Dowling said the aggregate limitcovered by the fund has soared from $16 billion to $33 billion. Henoted, however, that not all of the difference between the twofigures represents aggregate limits taken out of the reinsurancemarket, since neither Citizens Property Insurance Company (thestate's insurer of last resort) nor State Farm buy reinsurance.

Estimating, then, that only $8 billion in limits will actuallybe moved out of the reinsurance market and into the Fund, he saidthat at prevailing rates-on-line (premium-to-limit ratios) in the15-to-20 percent range, this would still take $1.2-to-1.6 billionin premiums--or perhaps even as much as $2 billion--out of the$10-to-12 billion property-catastrophe reinsurance marketplace, thebulk of which sits in Bermuda.

The profit impact will be even worse, he said, noting thatreinsurers generally expect profits from Florida that are higherthan from any other market in the world. "It is not inconceivableto talk about 25-to-30 percent of the expected profitability of theworldwide property-cat market that has just been eliminated," hesaid.

Going on to discuss the ripple effects throughout thecompetitive worldwide property market, he said that reinsurancepricing, already under downward pressure before, is now under moreintense pressure.

Days later, Joseph Taranto, chairman and chief executive officerof Everest Re, told analysts not to expect premium growth for hiscompany in 2007, anticipating "flat-to-down" premium levelsoverall.

"The Florida legislation is a curveball for our marketplace,"Mr. Taranto said. For Everest Re, the law will mean about $50million of excess-of-loss reinsurance business lost, hesaid--adding, however, that Everest also writes nearly $200 millionof property pro-rata in Florida which primary insurance clients maystill purchase.

Quoting Mr. Dowling, who said that Florida lawmakers had"decided to play Russian roulette with the state's insurancemarket," Mr. Taranto said: "I agree."

"Moving away from the Florida catastrophe market, I am happy tonote that reinsurance has not been legislated away and replaced bystructures with an inability to pay in other product lines, inother states and in other countries," he continued.

He predicted that his company's U.S. insurance book willcontinue to grow (on the strength of specialty program and Floridaexcess and surplus commercial property initiatives begun in 2006),but that casualty reinsurance premiums will likely fall (reflectingdeclines in underlying primary insurance rates).

At RenaissanceRe, where catastrophe premiums make up a largerproportion of overall writings, CEO Neill Currie was gentler toFlorida politicians and equally optimistic about opportunities inand outside the state.

"We recognize that the citizens of Florida and their electedofficials are confronted with a difficult situation," he said."Decisions made by the legislature reflect an understandable desireto ease the burden of increased insurance premiums for propertyowners in the state."

He added that "this situation has evolved over the past fewyears and will continue to evolve. [It] will take many, many yearsto settle out." He went on to point out to an exercised questionerthat it wasn't long ago that queries about possibly negativereinsurer impacts were raised with respect to the CaliforniaEarthquake Authority.

Still, for the near term, RenRe did lower its annual catastrophepremium forecast from a previous indication of 15 percent growth toa 5 percent drop for 2007. Chief Financial Officer Fred Donnerattributed the changed view more to a weaker-than-expected Jan. 1renewal season than to Florida legislative actions, however.

The revised estimate, he said, considers shifts in buyingpatterns--with insurers dropping bottom layers and buying newlimits at the top of their programs--as well as rate deteriorationfor international renewals and reduced demand in the retrocessionmarket.

Addressing concerns about Florida, Kevin O'Donnell, president ofRenaissance Reinsurance Ltd., noted that specialty insuranceoperations in the group complement the reinsurance operations heheads. "We've built a flexible structure that allows us to deploycapacity to traditional excess-of-loss, quota-share or primarybusiness--and tools to determine which of these options provide thegreatest returns," he said.

In addition, he noted that the company sponsored two sidecarslast year--Starbound Re and Timucuan Re--to help ease capacityissues in Florida at midyear 2006. The latter has already beenunwound, he said, noting Starbound expires at the end of May,giving RenRe flexibility to increase the business it retains forits own books.

Mr. Currie said the sidecars were an example of how the companyhas strived to do "the right things over time to build strongcustomer relationships."

Now facing more competitive conditions in the wake of theFlorida law change, he said that having moved quickly to helpcustomers last year, he believes the company can "rely on strengthof these relationships in order to maintain our role as ameaningful provider of reinsurance capacity to that market."

Executives at other companies with even more diversifiedinsurance and reinsurance platforms still had to address questionsabout how their companies will grow premiums and profits insoftening markets in both sectors, being fueled further by theearnings-driven spike in capital in 2006.

For example, ACE Ltd. CEO Evan Greenberg said that "we are inthat part of the cycle where revenue growth in many classes is morefor vanity than a reasonable underwriting profit. We will not playthat game."

Highlighting his firm's geographic reach, he shared details of arecent trip to Latin America, noting that in Brazil and Mexico, ACEis an established property-casualty writer, while also boastinglarge accident and health businesses targeting a growing middleclass in those countries. "We see significant opportunities toexpand our business," he said.

At XL Capital, CEO Brian O'Hara said that "we have a lot oforganic opportunities in the largest market--the United States,"noting that XL is presently more developed in Europe, separating itfrom the pack of Bermuda players. Some U.S. segments are strongerthan others, he added, citing surplus lines as "a very fertileplace to grow."

Internationally, he said XL is seeking a China license, and inIndia, where XL has 200 employees, the restricted market may openup, allowing insurers domiciled outside the country to own 50percent of ventures in place there--an expansion from the presentlevel of just 20 percent.

Henry Keeling, XL's chief operating officer, said insurancemarket conditions were better than expected in Europe for Jan.1--an important renewal date there--citing increased propertyreinsurance costs in 2006 and some prominent European directors andofficers losses causing the pace of price declines to slow.

In the catastrophe reinsurance market, he said the marketcontinues to exercise some discipline--a view shared by JohnCharman, CEO of Axis Capital.

"New capital committed to reinsurance since 2001 issubstantially more disciplined than that committed in years prior,"Mr. Charman said. "It is substantially deployed to cat-exposedbusiness," which relies on technical models and risk managementpractices, "where pricing is based on exposure," he added.

Asked specifically about the "Class of 2005" start-ups, KennethLeStrange, CEO of Endurance, said that while they were clearly"more visible" this Jan. 1 than last, they too showed a "reasonablelevel of discipline" as they assembled portfolios in offshoreenergy and cat-related lines.

But if cat-pricing has peaked, their behavior over the next sixmonths bears watching, he said, wondering out loud whether theywill be aggressive in other lines as they seek to diversify. Thosedesiring to go public "clearly are going to have to do more thanthey've done so far," he said, speculating that merger activitywill heat up and that several start-ups will increase businessactivities onshore.

Already three recent start-ups--Validus Re, Flagstone Re andCastlePoint--have filed initial public offering documents.

Private investor appetites remained strong in late 2006 andearly 2007, with at least five sidecars announced and twofull-fledged companies--Aeolus Re, targeting cat retrocessionalbusiness, and Ironshore, focused on U.S. coastal propertyinsurance.

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