Rating agency Standard and Poor’s says between US$10 billion and US$20 billion of new capital will enter the insurance market in the next six months, the majority of which will be in reinsurance. Already new companies have brought more than US$5 billion in capacity, notes Donald Watson, director of S&P’s financial services ratings. “With existing market participants also having filed to raise more than US$15 billion in new capacity, and the first US$4billion expected before mid-2002, even at this early stage the capital inflow looks to be significant.” Much of the new capital will be directed a new companies, showing what S&P calls “the continued reluctance among institutional investors to invest heavily in existing insurance companies until they can fully demonstrate their liabilities to the September 11 terrorist attacks”. These new companies will be trying get up and running in time to take advantage of hardening rates and limited availability of reinsurance cover for January renewals. At the same time, the industry needs new capital or risk facing prohibitive price increases, discontinued lines of business and the potential for existing companies’ capital to be stretched. Watson predicts these new companies “will tend to be more affordable to potential buyers of insurance than much of that currently in the market”, because they will not have investment-grade ratings and will have to compete on price. But whether these companies will last beyond the current hardening market remains a question. “There is a danger that one year from now investors will find that the momentum has gone from the insurance industry and will seek out new investments,” says Watson. He adds that these new companies will face stiff competition “due to the strong level of capacity that remains among p&c insurers and reinsurers”.