Record catastrophe losses can strain not only insurers' bottomlines but relations with reinsurers as well, according to ananalysis by one company's experts.

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A white paper written by professionals in the claims and legaldepartments of GE Insurance Solutions, Kansas City, Mo., finds thatthe insurer-reinsurer relationship needs special attention in theevent of a natural catastrophe.

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What tends to complicate matters, the authors said, is thatprimary insurers and reinsurers have sometimes common and sometimescompeting interests.

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In the wake of a hurricane, for example, a primary company'sfirst objective is to investigate and pay claims.

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"The sheer number of claims and inquiries can beoverwhelming--tremendous energy is required just to get your armsaround the problem," said Chris Carpenter, a claims consultant atGE Insurance Solutions.

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That inclination by the primary insurer, Mr. Carpenter said, isoften driven by political pressure or lawsuits to expand coveragebeyond what was intended by the policy. He pointed out thatpost-Katrina, insurers were often cast as insensitive for theirreluctance to ignore flood exclusions contained in thepolicies.

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A reinsurer by necessity takes a much different view of eventsfollowing a catastrophe.

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New York attorney Perry Kriedman agrees such situations are ripefor conflict, asserting that the so-called "follow the fortunes"doctrine in which the reinsurer covers good faith claim payments ofits primary customer only goes so far.

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"Whatever the outcome of these weighty disputes, the mostpractical approach would be for the cedants and their insurers tokeep one another informed about the status of cases and claims toreach a mutual consensus," he said.

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Tracy Laws, general counsel for the Reinsurance Association ofAmerica, Washington, D.C., said there really is no way to track thenumber of primary-secondary disputes since such arbitrations areconfidential.

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"I have seen a lot of stories in the trade press that thesedisputes center on 'follow the fortunes' issues, but we will justhave to see how it plays out," she said.

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Mr. Carpenter said a reinsurer wants to make sure it isn'tplaced in a tenuous position due to substandard claims handling byits cedant, or worse, jeopardized by deliberate efforts to pass onlosses that could have been avoided.

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