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SOUTHAMPTON, Bermuda-Well-capitalized insurers and reinsurers provide comfort for policyholders seeking security, but they can cause discomfort to investors seeking high returns on equity.

As a result of the differing interests, executives at the insurers and reinsurers have to perform a difficult balancing act between attracting policyholders and satisfying investors, a panel of insurance experts says.

The movement by insurers and reinsurers to increase in size is being driven by policyholders, brokers, regulators and rating agencies, said Brian Duperreault, chairman, president and chief executive officer of ACE Ltd. in Bermuda.

Policyholders, in particular, are seeking long-term relationships with well-capitalized insurers who will be able to pay losses when claims arise, he said.

Policyholders are increasingly reviewing how their risk management programs are constructed and how they will respond to a catastrophe loss, agreed Jean Kennedy, director of risk management at Medtronic Inc. in Minneapolis.

"There is always a doubt about what you buy and whether you'll be able to collect on it," she said. Contrasting with the buyers' desire for well-capitalized insurers and reinsurers is the concern of investors over excess capital in the insurance market, said Donald Kramer, president and CEO of Tempest Reinsurance Co. Ltd. and vice chairman of ACE.

"The biggest problem in the reinsurance industry today is unemployment. That is, the unemployment of capital," he said.

In Bermuda, for example, many of the catastrophe reinsurers have share buy-back and other programs to reward shareholders in a market where reinsurance rates are falling, Mr. Kramer said.

Insurers and reinsurers are also seeking to put their capital to use in other areas where their returns may be higher, said Steven Gluckstern, chairman of Zurich Reinsurance Centre Holdings.

But then they run the risk of making poor underwriting decisions because they do not have the necessary expertise to write the new business, he said.

"People form a company and say 'I'm really good at one thing,' and they are good and they build more capital. Then they branch out into areas which they don't understand as well," Mr. Gluckstern said.

However, if an insurer follows a careful diversification strategy it can become a stronger company, said Mr. Duperreault of ACE.

By writing a variety of coverages, an insurer can soften the blow to its profits when one area of its business suffers a downturn, he said.

"The buyer should look for companies that manage their capital well," Mr. Duperreault said.

John Cox, former chairman of ACE, moderated the session.