Stephen Searby, an S&P credit analyst, said in a statement that despite further price increases during the January 2003 renewal season, the market continues to suffer.

Mr. Searby said there is a diminished quality of capital, reduced financial flexibility (defined as the ability to source capital relative to requirements), prior-year liabilities, the overhang of reinsurance recoverables and "the likelihood that many companies' operating performance will fall short of expectations."

The S&P article containing Mr. Searby's comments was titled "Global Reinsurance 2003 Midyear Outlook: Negative Outlook Masks Divergent Fortunes."

"While participants need to rebuild and restructure their capital bases and put in place foundations to reduce future loss volatility, the ease of entry for new players and increased competition in the market have dampened the ability of existing players to recover," S&P reported.

Rates in many casualty classes continue to rise?such as workers' compensation, directors and officers, and medical malpractice; there are signs that certain sectors of the market have peaked, S&P added.

"U.S. property, global property-catastrophe, retrocession and aviation lines have reached or passed their peak, leaving the sustainability of the improvement in terms and conditions subject to some conjecture," Mr. Searby said.

S&P said the performance of the big four reinsurance groups?Munich Re, Swiss Re, Employers Re and General Re?has been lackluster. The firm noted that these reinsurers represent 32.3 percent of the market, with an average combined ratio of 127 and average return on revenue of negative 5 percent for 2000-2002.

However, the market outlook hides a broad divergence of industry fortunes, S&P said.

"Many established Bermuda-based operations have fared much better than the big groups over the same period, and these in turn have been outperformed by the more recently formed companies," said Mr. Searby.

"The results indicate that the ability to write business opportunistically is a key competency for success, with those reinsurers that have been able to step in and out of business lines faring well," he continued.

On the other hand, the larger reinsurance groups have tended to be more relationship based, and therefore were slower to move out of unprofitable lines of business and have perhaps been impeded by longer lines of communication, said S&P.

"While the intent of senior management in large organizations can be crystal clear, communicating the need for change and making it happen can prove extremely challenging," according to Mr. Searby.