Ever since capital began pouring into Bermuda, competition for superiority in the global insurance market has picked up a pace.

For commentators, Bermuda has become a true threat to London's international insurance market: and so, the Lloyd's vs Bermuda contest began.

Suddenly, onlookers were declaring that Lloyd's was losing market share to the Caribbean outfit "hand over fist". One commentator said: "Lloyd's lack of electronic trading and contract certainty, combined with antediluvian business practices, could potentially be fatal in the Google world."

But Lloyd's has not shied away from its responsibility to modernise, its chairman, Lord Levene, saying only last week that the market could not afford to simply quote from its "glorious past". "We are in a new century, a new millennium, and the competition takes no prisoners," admitted Levene.

While Lloyd's has been busying itself with electronic, business and cultural reform, events outside of its control have come to the rescue. The natural and catastrophic events of 2005 have, according to some, placed Lloyd's in a better position than its offshore rival.

Although Bermuda insurers receive more favourable tax and regulatory treatment, it is the 318-year-old way of working that has given the Lloyd's market the upper hand, according to Chris Hitchings, European insurance analyst at investment bank Keefe, Bruyette and Woods.

Hitchings says Lloyd's has the "ideal structure". Lloyd's, he says, has access to a renewal book, but "no exposure to the previous two years' losses". It also has "specialised businesses writing on a diversified balance sheet", giving capital efficiency.

As this year's interim results stream in it appears that, so far, 2006 is proving to be profitable. But there is a warning for Bermuda insurers, and that is the need for diversification.

The proof is in the numbers. Those companies that wrote multi-line business in 2005 reportedly lost between 5% and 25% of their mid-year capital base as a result of the hurricanes. On the other hand, those that simply chose to specialise in property and catastrophe lost as much as 40% to 100%.

As Hitchings says: "Losses from 2005 hurricanes have materially damaged the mono-line model. It needs either much more capital or much more diversification. The latter will be difficult given Bermuda's narrow distribution."

While nobody emerged from the 2005 hurricane season unscathed

(the insurance industry suffering catastrophe losses of £44.6bn) insurers and reinsurers are reaping the rewards of resulting premium hikes. But for everyone to survive another bout of catastrophes, diversity, flexibility and shrewd underwriting are the keys to success. Could this be where Lloyd's holds the upper hand? IT