Reinsurance At A Crossroads

Los Angeles

A panel of industry experts voiced both concern and optimismabout the reinsurance market here at the CPCU Society's annualmeeting.

Joseph Dillon, chief underwriting officer for commercialinsurance for Novato, Calif.-based Fireman's Fund, discussing theeffects of catastrophes, recalled the gloomy days after the Sept.11 terrorist attacks. “We could not get concurrent terms withpolicies that we are required to offer by state regulation,” hesaid. “Since the reinsurers were not regulated, we were leftvirtually bare.”

Despite the fact that Mr. Dillon remains optimistic thatreinsurance coverage will be available at a reasonable cost, hesaid he is already in the market for the 2005 season, even thoughhis treaties do not expire until April 1 and July 1. “We are afraidthat catastrophe [coverage] could become an issue and we want toget ours locked up,” he noted.

Todd Hess, chief risk officer for the Swiss Re UnderwritersAgency in Calabasas, Calif., sees the reinsurance industry at acrossroads. The hard and soft pricing cycles of the past “have beena function of marketshare mentality trumping analyticalindications,” he said.

On the property-catastrophe side, while having four majorhurricanes hit Florida in two months might seem unusual, from amodeling perspective they were “not unimaginable,” he noted. “Buton the casualty side, the results come out many years later, and inthe ensuing time a whole lot of business has been written.”

He noted that the forced exit of Zurich-based Converium from theNorth American market resulted in forced reserve increases forcasualty lines of business.

James Farmer, vice president of operations for Bloomington,Ill.-based State Farm, compared this year's catastrophe season tothe one 12 years ago when, he said, losses may have been roughlythe same in dollars, but were nowhere near the same in overallimpact. “If you remember back in 1992 in the aftermath of[Hurricane] Andrew, it took a long time for capital to flow backin,” Mr. Farmer recalled. “There were some Bermuda start-ups.London was out of play for awhile. It happened, but it did nothappen very quickly.”

After the Sept. 11 terrorist attacks, however, capital flowedinto the industry much quicker and almost matched the capacity thatwas lost.

As for the 2004 hurricane season, Mr. Farmer said any softeningin the property-catastrophe market will stop following HurricanesCharley, Frances, Ivan and Jeanne, “but there will not be this hugeincreased reaction we had post-Andrew, so I am optimistic.”

Reproduced from National Underwriter Edition, October 28, 2004.Copyright 2004 by The National Underwriter Company in the serialpublication. All rights reserved.Copyright in this article as anindependent work may be held by the author.