November 14th - 17th, 1999
Hyatt Regency Miami, Florida

New Reinsurance Products for Captives

R. Lincoln Trimble, Vice President, Chubb Atlantic
Michael Woodroffe, President, Meadowbrook International
Moderator: Robert J. Rosser, SVP, Skandia International Risk Management

Tuesday, November 16th, 10:45 - 12:00 p.m.
 

"Reinsurers Brace for Pricing Rebound in 2000"

The long-awaited "hard market" may finally land in the first quarter of 2000, but don't expect higher insurance and reinsurance prices and tighter coverage in all areas, several reinsurance experts warned at a conference Tuesday.

A hard market occurs when prices rise noticeably and coverage becomes harder to place. Several factors are converging that are going to make those elements likely for at least some major lines of coverage, said Michael Woodroffe, president of Meadowbrook International, a Bermuda-based reinsurance broker.

Those include:

• Players in the capital markets are losing their love affair with insurance stocks, which means many publicly traded insurers and reinsurers have seen their stocks fall in 1999. It also means those companies will look to price increases--or at least hold the line on additional cuts--to recapture the confidence of investors. "Our stocks have all been hammered this year," Woodroffe said.
• Because of ongoing consolidation, fewer reinsurers are in the market. Speaking at the Ninth World Captive and Alternative Risk Financing Forum in Miami, Woodroffe said he could identify about 15 reinsurers currently willing to service the needs of captive insurers, a number that in prior years was much higher. "The good news is that my FedEx bill has gone down," he joked.
• Because of problems with Australia's New Cap Re and GIO, the market for "retrocessional" coverage--reinsurance that reinsurers place with one another--has shrunk dramatically. "The full impact won't come until March when the renewals are complete," Woodroffe said.
• Problems with the workers' compensation carve-out market, highlighted by problems surrounding the Unicover-managed pool, mean many life insurers and other former players in portions of that market have withdrawn.
• It has been a terrible year for catastrophes, with earthquakes in Turkey, Greece, Taiwan and Mexico, and hurricanes in the United States and elsewhere. "Everyone in the cat market is suffering, all without that one giant catastrophe that everyone has been predicting," Woodroffe said.

"One benefit of the soft market is it really makes you think," said R. Lincoln Trimble, vice president with Chubb Atlantic, Bermuda. "All the things we learned in the soft market will still be there in the hard market."

Reinsurance pricing and availability are sensitive issues in the captive market, which is flourishing offshore in such countries as Bermuda, the Cayman Islands and elsewhere. Domestically, states such as Vermont and Montana are actively recruiting captive insurers.

Captives are special-purpose insurance companies designed to insure the needs of companies, associations or groups. Typically, a captive sponsor provides capital to meet the lower-level insurance needs and reinsures higher-level exposures. "It's been said that a captive is only as good as its reinsurance," said Robert J. Rosser, senior vice president with Skandia International Risk Management, Bermuda.

Woodroffe warned that any move to a harder market wouldn't be uniform, and some areas of coverage are would be hit harder than others in terms of price and availability. For instance, liability coverage for commercial trucking is still priced at 25% to 30% of what it should be, based on actuarial standards. "You'd have to be a brave man to put trucking into a captive," he said.