He said “the world is looking more closely at the credit quality of its partners” after the loss of financial companies that were “household names,” referring to both insurance and reinsurance partners, noting that buyers are now “paying more for credit quality than ever before.”

These executive and others said they believe next year's opportunities will not be limited to the reinsurance sector. Mr. Charman, who reviewed an “unprecedented confluence of events” in the third quarter, including Hurricane Ike and the meltdown of worldwide financial markets, specifically highlighted one particular event–the significant weakening of “our major and most aggressive competitor,” American International Group–as the harbinger of a cycle turn in the primary insurance market.

He said AIG's deteriorating situation, which prompted “massive financial assistance” from the government, “in isolation is enough to cause change throughout our market and products.” AIG “historically has had significant [market] influence, deployed substantial capacity, and…demonstrated extreme pricing competition,” he added.

“In my view, AIG is the haystack–not the straw–that broke our industry camel's back,” Mr. Charman said.

Identifying other drivers, such as “extreme pricing pressure in nearly all insurance business lines over the last three years, and historically high levels of property losses throughout the world this year”–including not just three land-falling U.S. hurricanes but floods in the Midwest, snowstorm and earthquake losses in China, and mining and energy losses in Australia–he said that “our view is these events have heralded an across-the-board hardening throughout the property-casualty market.”

While executives noted that weakened competitors and higher catastrophe losses are among the factors that typically set the stage for insurance market corrections, they noted a massive depletion of industry capital through investment losses will set this market turn apart from most prior ones.

“The perceived excess surplus that the industry has might disappear between the third and fourth quarters through mark-to-market [accounting] adjustments” on investments, said Dinos Iordanou, CEO of Arch Capital, during the company's Oct. 24 earnings conference call.

“There could be in the aggregate somewhere between $50-to-$100 billion of adjustments to balance sheets,” he said, noting that while impairments might be temporary, subsequent comparisons of year-end capital to rating agency requirements will signal less capacity in the market.

Mr. Iordanou compared the impending turn to the mid-1970s turn that was driven by steep stock market declines. “Literally, companies went to sleep writing 2-to-1 and woke up writing 4-to-1,” he said, referring to premium-to-surplus ratios that ballooned as surplus levels declined. The market turned not just because loss ratios were creeping up but also because “the asset side of the balance sheet was re-marked and a lot of capital went out,” he said.

Arch CFO John Vollaro agreed, noting that other cycles were driven by horrible underwriting results. “It is the first time I remember this really happening–[that] capital availability is severely constrained.”

“That has an impact on how people think,” he said. “There's pure capacity that's represented by capital, there's willingness to use capacity, and the fear of what happens if something goes wrong,” he added, noting these reactions factor into market changes.

On the reinsurance front, executives like Patrick Thiele, CEO of PartnerRe, and Kevin O'Donnell, senior vice president of RenaissanceRe Holdings, focused on the psychological impact that massive capital losses are having on customers.

Mr. Thiele said PartnerRe is already fielding “significant inquiries” from mutual insurers in the United States, which have a very difficult time raising capital even in the best of times.

“They tend to do it through retained earnings,” he said, noting that this year, by his calculations, mutuals in the Midwest are posting combined ratios in excess of 110, while their investments in common stock represented 40 percent of statutory surplus–both of which will put a major dent in operating earnings.

“They are beginning to look for alternatives in terms of capital relief, [and] reinsurers are the only readily available source of capital in difficult times,” he said.

“We would expect this increase in demand will be sustained for some time, just as it was in the early 2000s, after a number of precipitous events,” he continued, listing European storms, a stock market crash and casualty loss reserve deficiencies among the catalysts of that market turn.

“This time, I do not expect the capital markets to provide new capital to offset that strain,” Mr. Thiele added, echoing other executives who noted that unlike the periods following the World Trade Center attacks in 2001, and Hurricanes Katrina, Rita and Wilma in 2005, capital won't flow into Bermuda from hedge and private equity funds competing to take part in the insurance upside of financial crises.

At RenRe, Mr. O'Donnell said, “even with the same supply, more demand alone should be enough for us to find a new equilibrium price for risk” going forward.

“I feel optimistic about the Jan. 1 renewals,” he said, noting that in early meetings with brokers and customers, discussions center “much more [on] availability of capacity than price.”

The prevailing “mindset [is] a function of the general macroeconomic environment rather than a specific response to catastrophe losses,” he suggested, contrasting this to the post-hurricane period of late 2005 and 2006.

“If you ask the question: 'Do you want more or less risk right now?'–most people will respond they want less. There's more than one way to achieve less risk, but I'm hopeful…it will come down to our customers buying more [reinsurance] and…our competitors writing less,” he said.

Further contrasting the 2006 hard market, he said what happened then was that people adjusted their views of hurricane risk. “That flowed through the U.S. wind market, [but] it didn't affect much outside” that sector. Today, the confluence of events impacting customers could fuel “a broader array of price increases” than 2006, he said.

Others made references to potential opportunities and higher prices in specific casualty insurance lines. Mr. Thiele, for example, cited “a slow-motion casualty loss uptrend” being led by subprime-related losses in the U.S. directors and officers and professional liability lines.

Mr. Iordanou, asked specifically about the construction market, where lower levels of construction activity would seem to indicate less insurance business, said movements away from troubled carriers present opportunities.

More generally, Mr. Charman said, “I think this is a much broader and sustainable opportunity than [after] 9/11,” referring to the market environment that spurred the creation of the “Class of 2001″ Bermuda companies, including AXIS.

Third-quarter financial results for the “Class of 2001″ and older Bermuda publicly traded insurers compiled by NU reveal bottom-line losses for all but two insurers in the group–Arch, which posted $26.4 million in net income, and ACE Ltd. (now based in Zurich but still with substantial Bermuda operations), with $54.0 million.

In the aggregate, the total third-quarter net loss for the group was nearly $3.0 billion–making this the worst third-quarter since 2005, when the aggregate net loss figure approached $5.5 billion. Back then, the group reported over $8 billion in hurricane losses, and the overall Sept. 30, 2005 capital position was nearly $4 billion (9 percent) lower than at Dec. 31, 2004. (See NU, Nov. 21, 2005, page 15.)

While insured losses from Hurricanes Ike and Gustav for the group this year amount to $3 billion so far, shareholders' equity has fallen by nearly $8 billion, or 12.9 percent from year-end 2007, to roughly $53 billion for the group.

In total, these insurers recorded more than $5 billion in realized and unrealized losses from investment sales and accounting adjustments in the third quarter, compared to a small net gain on investments last year, and the hurricanes helped push the aggregate third-quarter combined ratio up more than 24 points to an unprofitable 107.

Focusing on the extent of the damage to the capital levels of these insurers, analysts questioned whether these Bermuda companies themselves would have capital available to take advantage of the better market conditions being forecast.

They questioned the forecasts, as well. What if the credit crisis eases? Won't a recession mean fewer exposures and less insurance business to write, they asked.

In addition, rating agencies could spoil the party, suggested Michael Price, CEO of Platinum Underwriters Holdings, noting that the rating agencies, which raised capital requirements for catastrophe risk in the wake of 2005 storms, could go back and adjust asset risk factors now.

Preaching additional words of caution for insurers and reinsurers, Aspen CEO Chris O'Kane said, “I believe it is possible…to be hopeful about a general upturn in market fortunes [but] to be hopeful is not…to be completely persuaded.”

Going on to list four preconditions for a market correction–several years of low premiums and high losses; company failures; a cataclysmic event; widespread willingness “to put up prices even if it results in a loss of business”–he said only one or two have “even been partly met.”

“At this stage, we are paradoxically going through the reverse, with significant rate reductions being offered by a distressed competitor to counter the threat of lost business,” he said.

Identifying the distressed carrier as AIG, even Mr. Charman and ACE CEO Evan Greenberg–who a day earlier had declared that “the end of the soft market in insurance has arrived”–conceded that increased submission flow from AIG customers wasn't easily converted into bound policies.

“They are an outlier right now in the pricing environment. They are aggressively cutting pricing in an irresponsible way, and it's worrisome,” Mr. Greenberg said.

Mr. Taranto speculated that AIG could become a bigger reinsurance buyer as individual companies in the group are sold. “They may need us more than ever, because suddenly we are not talking to this company [with] $200 billion market capitalization [that] could frequently tell us, 'We will just keep it net.'”

William Ashley, president of Glencoe Holdings, a specialty insurance division of RenRe, said he's seeing a change in the behavior of insurance consumers that's beyond the control of AIG to respond to through pricing. Buyers are paying more attention to how much risk they're willing to put in any one place–”that's not just with AIG, that's really across the board,” he said.

“We sense that there is a return to a subscription market, particularly evident in financial lines, construction liability, general liability, aviation and even in major account property lines,” said Mr. O'Kane in a similar vein. Commitments of $100-to-$500 million previously awarded to one carrier are now being awarded to three, four or even 10.”

While “this process [of] sound risk management will ultimately lead to significant price increases,” Mr. O'Kane said another factor delaying the inevitable rise is the fact that the industry probably has “a year's worth of overreserving” left.

With a reserve cushion still available, “things haven't been that bad so far for most people,” he said, suggesting that for some, it will be easier to take down reserves to boost returns than to push up prices initially.

“So maybe we see the beginnings of a turn [at] this year end [that] strengthens over the next year or so, with a hard market coming in 2010,” he predicted.

“Things are definitely looking up from where they were, but I think it might be a little bit early to sound the trumpet and say the hard market is with us,” he said.

Others pressed to predict exactly when prices will rise and how far they will jump responded with a general recognition that it will take time before isolated instances of rate reversals from decreases to increases permeate the market.

“This was not a situation where everyone instantaneously recognizes rates must go up like you had in 2005 [because of] a loss bigger than anyone anticipated,” Mr. Price said, noting that the message will start to “percolate through organizations” and out to clients and brokers only after companies have assembled third-quarter results and become “mentally tuned in” to the impact of investment losses.

“The message has begun to get out. It has to get out. There's enough time between now and 1/1 to be fully realized in the marketplace,” he said, like others eyeing the Jan. 1 renewal date as a launch point for a property turn, followed by casualty later on.

“We're not forecasting a dramatic turn in the near term,” PartnerRe's Mr. Thiele said, noting there is still volatility in the financial, currency and reinsurance markets. “Anytime you go into a transition,” there will be volatility until the market finds new pricing levels, he added.

Responding to the suggestion that higher costs of capital should prompt much higher return hurdles–and pricing–from reinsurers, he said, “We're not in the business of gouging clients….They expect to have…consistency of offers [and] there should be at least some relationship [between] the price we charge today [and] the price we charged six months ago, a year ago, two years ago.”

“This doesn't need to be 40, 50, 60 points of rate to get to an adequate level of profitability in this industry,” he said–noting, for example, that PartnerRe expects a 2008 return-on-equity above its 13 percent long-term target, not a negative ROE.

Mr. Charman was more bullish on both pricing and timing. “We have to retake the ground the industry has given away over the last three years–and it's pretty much across the board.”

“We will be very demanding because we have had to be patient. We expect to maximize whatever profitability is out in the marketplace,” he said, noting the AXIS had reduced its participation in insurance segments in recent years in response to inadequate prices. “The gloves, thank goodness, are now nearly off. All of us at AXIS can hardly wait to step strongly back into global arena.”

Art caption (of Bull on the beach in Bermuda? Or Bull versus a bear):