Retooling reinsurance: capital markets are making a huge play for new technologies that will keep them in the securitization game.(Agent/Broker)

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Ever notice how, when you get some new, cool high-tech toy--like a 60-inch plasma HDTV or a new Nintendo Wii gaming system--the neighbors and friends seem to drop in a little more often?

That's basically what's going on in the reinsurance arena, where nontraditional players from capital markets are overstaying their original post-Katrina welcome to play with the big boys' high-tech toys.

Hot technology products among traditional reinsurers--cat models, mapping software, dynamic financial analysis scenario testing and dynamic optimization--are enabling funds and private equity to invest in insurance-linked securities such as cat bonds and industry loss warranties. These complex products cover such catastrophic perils as drought, heat waves, pandemic, energy shortages and mass-scale business interruption.

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The influx of capital that these market classes brought to the scene following hurricanes Katrina, Rita and Wilma in 2005 was most welcome. Now they've found two big reasons to stay: attractive yields and uncorrelated risk.

As the quality of cat modeling has improved over the years, so has its peal to nontraditional players, said Edward Torres, senior vice president at Benfield Advisory's New York City offices. New players and new technology "certainly go hand in hand," he said.

"Once you've got a business that can be largely captured within models, there are a lot of different financial innovations that can take place," Torres said. New players bring with them their own metric and financial tools and a unique approach to the area, such as a higher level of contract certainty, he said.

While nontraditional players have been dipping their toes into reinsurance since the late 1990s, the big emergence of new players came with an influx of capital after Katrina. "The pricing just went through the roof and these guys took a piece of that," …