Operators of oil rigs in the Gulf of Mexico may have breathed abig sigh of relief as they eyed the easterly track of HurricaneBill recently because many drastically shrank their hurricanecoverage programs, insurance executives reported late lastmonth.

"We scared a lot of clients into self-insurance by [requiring]huge premium dollars, where it might have been moreintelligent...to focus on coverage," said Richard Brindle, groupchief executive of Bermuda-based Lancashire Insurance, where energyinsurance makes up for more than 30 percent of the overall book ofbusiness.

Mr. Brindle, who made his comments during an earnings conferencecall in late July, admitted to being blindsided by the decisions ofmany offshore energy insurance buyers to forego insurance coveragepurchases for the Gulf hurricane peril. The buyers made theirdecisions months before the first hurricane of the seasonformed.

"We are humble enough to admit we did not anticipate [this]. Inour defense, I don't think anybody did," he said, explaining that acombination of low oil prices, insurance price hikes of over 100percent, and "loose [debt] covenants from mortgagees and lessorswhich did not effectively force our clients to buy cover, allconspired to create a market where an unprecedented number ofclients headed for the exits."

Another executive whose company writes the business, ChrisO'Kane, CEO of Bermuda-based Aspen Insurance, said pricing anddeductible levels in the energy insurance market for hurricanecoverage in the Gulf of Mexico "moved dramatically in our favor,"resulting in a rate-per-exposure in Aspen's portfolio that was morethan double last year's level during second-quarter 2009.

"However, many clients faced with increased pricing chose to buyless cover or even [entirely] retain the risk" (in other words, tobuy no coverage), he added, noting that Aspen decided to decline,which meant the company ultimately wrote just 60 energy insuranceaccounts this year, compared to 116 in 2008.

While Mr. O'Kane said he did not have hard data as to whathappened in the overall energy insurance market for Gulf hurricanerisk, "the best evidence...suggests that about one-quarter of theclients have stopped buying Gulf of Mexico cover altogether, andthat total limits purchased reduced by about half."

Mr. Brindle said his underwriters are meeting with clients andbrokers in Houston to try to win them back. Insurers need tounderstand "whether the market might have been smarter to focusless on big premium dollar numbers and more on coverage restrictionissues," he added.

Among specialty insurance market participants, he reported,"there has been some talk apocalyptically about Gulf of Mexicobusiness being over as a class of [insurance] business," but hedismissed the chatter as being "quite ridiculous, frankly."

"It's a hiccup," he said, explaining that oil was priced at $30per barrel when insurance buying decisions were being made. If theymove back up to $70 or $80 per barrel and insurers work withclients on coverage changes, "we are optimistic we can get themback," he added.

He also took the opportunity to scold insurance underwriters fortheir kneejerk reactions to continue offering the same product yearafter year, while "just moving the price up and down."

"We can do much more than that," he said.

Deputy CEO Simon Burton, who explained that many buyers decidedto retain higher layers of coverage in particular (layers that hadbeen the preferred area of the business for Lancashire), also saidthe company shifted its attention to writing moreproperty-catastrophe reinsurance risks, since that business offeredgood risk-adjusted returns in the second quarter. (As a result,Lancashire's overall premium volume for the year to date hasremained relatively flat at about $385 million.)

"Our shift toward this class was timely as it coincided withconcerns over the liquidity of state vehicles," he said.

Executives of several other Bermuda companies described propertyreinsurance opportunities in Florida in particular, where one catspecialist, RenaissanceRe, saw enough opportunity to prompt it toset up a new sidecar--a rarity in recent years.

RenRe said the new reinsurance sidecar--Timicuan Reinsurance IILtd.--set up with $60 million of capital, created additionalcapacity for the Florida homeowners market, and that under a fullycollateralized reinsurance agreement, Ren Re ceded a definedportfolio of property-cat business.

Commentary was mixed, however, about whether catastrophe pricingin North America will continue to be attractive to reinsurers.

For example, David Brown, CEO of Flagstone Re--who reported thatFlorida pricing was up roughly 15 percent during midyearrenewals--also said more reinsurers started quoting on the businessas the renewal season drew to a close. That additional supply putpressure on pricing, he said.

"Up until mid-May, while quoting business, we were being askedhow much more capacity we would offer on many programs. However, inthe last 10 days of May, several European reinsurers stepped up tooffer additional capacity, causing many programs to beoversubscribed," he said.

Looking ahead, Mr. Brown said, "if industry losses in NorthAmerica remain low for the rest of the year, our expectation is forincreased competition," adding that "the market cycle could beginto soften should this scenario materialize."

Outside of the North American property reinsurance market,Bermuda executives individually described a wide range of specialtyinsurance opportunities ranging from non-cat business in LatinAmerica, global aviation business and financial institutions (FI)liability.

Mr. O'Kane commented on the last category--FI professionalliability and directors and officers coverage--where he said Aspenhas no immediate plans to increase its play in the market yet.

"The worst of the [credit] crisis has passed in the realeconomy, but it hasn't yet hit the insurance industry," he said,noting he believes "there is a lot more [loss] reserving to bedone" by insurance competitors, to be accompanied by "much muchmore movement of FI pricing internationally and in the UnitedStates."

"I'm anticipating within 12-to-18 months to be telling you somegood news, which is that we're rapidly expanding significantly onthe back of a significant market hardening," he said.

(In an article in last month's edition of NU'sE&S/Specialty Lines Extra, Michael Rice, CEO of Aon'sFinancial Services Group in Denver, Colo., noted that Aon hadalready seen D&O price hikes as high was 80 percent for FIinsureds.)

John Charman, CEO of Axis, said his company seized a uniqueopportunity to write bond reinsurance in Latin America during thesecond quarter--an opportunity he said was created by the pullbackof a former market leader in the region that he did notidentify.

Separately, Mark Byrne, Flagstone's chair, described an array ofspecialty insurance and reinsurance opportunities for his companyin Brazil--a location where he believes there is a $44 billionprimary market and a $5 billion reinsurance market each growingannually at a 20 percent clip.

According to Mr. Byrne, Flagstone--the global provider thatoperates as a reinsurer and insurer of short-tail specialty linesin North America, Europe, Latin America, Dubai, India and SouthAfrica--recently launched an initiative to write non-cat-exposedlines in Brazil, such as inland marine, aviation, energy,engineering and short-tail casualty.

"Acquiring even a 1- or 2 percent share...could meaningfullyimpact premiums at Flagstone for the next one or two years," hesaid.

At Validus Holdings, CEO Ed Noonan described the potential forgrowth at his company as a result of new global onshore energy andaviation initiatives launched at the firm's London-based Talbotoperation within the past year. The energy team wrote an $800million account with its prior carrier, while the new aviation teamwrote a $600 million portfolio within another insurer beforejoining Validus, he reported, describing the potential size ofopportunities he envisions.

As for pricing, Mr. Noonan said rate increases in the aviationmarket are now in the 15-to-20 percent range, but Validus expects20-to-30 percent hikes in the fourth quarter when most businessrenews.