NEW YORK--The size of the next catastrophe to impact property-casualty reinsurers won't determine whether it's a market-turning event, said global reinsurance executives, instead suggesting that the element of surprise would be a bigger factor.

During Standard & Poor's annual insurance conference here yesterday, three executives were asked how large the next catastrophe would have to be to change pricing from hard to soft.

Wilhelm Zeller, chairman of the executive board of Hannover Re in Germany, responded, "I can't answer this question--and I doubt that there is a serious answer," referencing a broker estimate he'd seen suggesting that a $60 billion cat would turn the market.

"My philosophy is different," he said, explaining that his belief is that insurance and reinsurance markets change if there are "a big number of market participants that cannot continue as they did" before.

"This does not necessarily require a big catastrophe," he noted. While a big catastrophe might help, "combined ratios north of 110 for two or three years would also accomplish this," Mr. Zeller pointed out.

Ray Barrette, chairman and chief executive officer of White Mountains Insurance Group, observed, "It usually will take a large cat that has unexpected effects."

"If there's a big Florida cat, it's not going to do anything to the market," he said. "It's when it's unexpected--the scope or range of [the catastrophe] is unusual. Then some specific companies get caught in a trap they didn't know they were in. Otherwise, it's just another way to lose money."

Neill Currie, CEO of Bermuda-based RenaissanceRe Holdings, agreed. "A lot of this is based on psychology and fear," he said, noting that the difficulties reinsurers faced in the wake of Hurricanes Katrina, Rita and Wilma in 2005 related to the "unexpected attributes" of that trio of storms.

"What is going to cause the fear for people not to step up the next time?" he asked.

The executives were also asked whether they thought the capital markets would be willing to step in to help replenish reinsurer capital following the next mega-catastrophe as they have in the past.

Mr. Zeller responded by urging reinsurers to take a serious look at their risk management strategies so they don't have to rely on the capital markets.

Listing three possible risk management strategies that reinsurers can adopt--seeking to protect earnings from volatility, to ensure the survival of the company, or to protect capital, he said, Hannover Re strives to protect its capital.

"We don't want to be in a situation after a big catastrophe where we are at the mercy of the capital markets," he said.

So far, in the past, both after the 9/11 attacks and post-KRW, the capital markets were there to replenish capital. But there may be a 100-year event, such as an earthquake in Tokyo or California, that could dampen the appetites of capital markets participants, he speculated.

Reinsurers who rely on the capital markets "to plug holes in their balance sheets" after an event can't participate and profit from any hardening that might follow, Mr. Zeller added.

Mr. Currie agreed. He said RenRe executives "run the company on a per-share basis," explaining that this means "we're looking after our existing shareholders."

If you have to go raise new capital, the providers of that capital get the benefit of higher rates, he said.

RenRe did not have to replenish capital like other Bermuda property-catastrophe reinsurers in the wake of KRW, Mr. Currie noted. Instead, the company was able to attract capital to some existing joint ventures and new ones (sidecars) to participate in the market upside, he said.

The capital markets will "always be there," he predicted, expressing the hope that they would again come to RenRe to facilitate the use of the capital in innovative ways in the future.

Mr. Barrette sees the appetites of the capital markets expanding even without catastrophe-driven hard markets to pique their interest.

"I think the automobile business will move to the capital markets," he said. "The whole financing of the insurance business I think will be more driven by the capital markets" in the future, he said.

In addition, he said, "I think the capital markets will compete in the reinsurance business [and] displace a lot of it."

Still, he said, reinsurers won't be totally displaced, drawing an analogy to the downfall of U.K. mortgage lender Northern Rock, where the business was "completely dependent on capital markets [which] disappeared in a day."

He also noted that with reinsurance there is the potential mismatch between basis risk (referring to the underlying losses experienced by an insurer) and the capital markets solutions (the payout of cat-linked securities).

"A good primary company will have a balance between capital markets and traditional reinsurance," Mr. Barrette noted.

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