CICA Fears Captive Reinsurance Crunch

The head of a captive organization said the group must movespeedily to confront a possible crisis in reinsurance availabilityin the wake of the Sept. 11 terrorist attacks.

“I personally am convinced that the insurance market is onlygoing to get worse, not better, and we need to be doing something,”said Michael Mead, chairman of the Captive Insurance CompaniesAssociation, based in Minneapolis.

Mr. Mead, president of M.R. Mead and Company in Chicago, saidCICA officials were set to meet on Oct. 21 to discuss the impact ofterrorist attacks on the captive market.

Mr. Mead said he has been involved in “quite a few e-maildiscussions” lately with people who are becoming “very concernedabout which way the so-called terrorism reinsurance initiative” inWashington will go.

The insurance industry has put together a proposal for astate-chartered mutual carrier–Homeland Security MutualReinsurance–that would be backed up by the federal government.However, the Bush Administration and Congress have their own takeson the initiative, and time for government action is short withCongress set to adjourn soon.

Mr. Mead said there is concern among his members that “ifterrorism coverage cannot be excluded, and if the government takesthe position that its in the public interest for this coverage tobe provided, some underwriters will then not offer any coverage onparticular risks.”

As an example, he said owners of a highly visible piece ofproperty such as the Sears Tower in Chicago could be deniedcoverage even if the government agrees to reinsure the terrorismexposure, but “requires the first layer of coverage to come fromthe building owners insurer. They may well find that nobody wantsto write it.”

This was one of the topics scheduled for discussion this pastweekend, he said. “I think where were coming from is that I dontthink that CICA is the organization to support or endorse anyspecific proposal, but I do think were a good organization to startthe discussion and get it out on the table, and try to formulatesome solutions,” Mr. Mead explained.

One of the options–endorsing a single company's reinsurancesolution–”becomes a tricky thing,” he said. “It may come out thatone company gets a deal in Bermuda, so CICA could recommend thatall captive owners do business with that company. Would that getits competitors moving? I dont know. Maybe it would. But I think itwould be a disservice to our members if there are a half-dozensolutions out there and we pick one.”

He explained that, “if an organization stands up and says, weregoing to endorse [one companys] solution, they will have to dealwith the fact that a lot of people are going to be unhappy withthat. There is the counter position that if theyre unhappy, whydont they come up with a solution. Its entirely possible that CICAand other organizations might say If youve got a solution, weregoing to endorse it,” he said.

(For more on the effect the terrorism attacks might have on thecaptive market, see page 23.)

Reproduced from National Underwriter Property &Casualty/Risk & Benefits Management Edition, October 22, 2001.Copyright 2001 by The National Underwriter Company in the serialpublication. All rights reserved.Copyright in this article as anindependent work may be held by the author.

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