NEW RAILWAYS FIND INSURERS RELUCTANT TO RIDE

The breakup of Britain's formerly nationalized rail company into dozens of private enterprises has provided insurers with a potentially huge new market, though insurers are proving slow to embrace the new risks.

So far, just one insurance company, St. Paul International Insurance Co. Ltd., is prepared to write a big chunk of primary rail insurance business.

Although British Rail previously bought catastrophic coverage from the insurance market, the system was financially strong and geographically and organizationally broad enough to carry a (British pounds) 10 million ($16.8 million) self-insured retention. Most of the new companies emerging from the privatization process, though, are unable to carry such large retentions, industry executives agree.

So why hasn't this demand for primary coverage prompted more insurers to board this train?

"It is the Big E-Emotion," says Andy Brown, a project director with Jardine Insurance Services Ltd. in London.

"The market doesn't understand rail risks. They don't want to touch it," he said.

Mr. Brown, who joined Jardine after several years working in the rail industry, said he gradually is "starting to get other underwriters interested by dispelling a lot of emotions" connected with railway accidents.

The rail industry needs more capacity at the primary level, according to Mr. Brown. "There is just one big underwriter. St. Paul is a high-risk underwriter," he said.

Many underwriters' fears about the new industry are unjustified, he contends.

"Most of the new company owners are leaving management teams in place," he said, adding that "safety standards laid down by Railtrack, the company responsible for the British rail infrastructure, are "quite clear and cannot be compromised."

However, Colin Hamling, manager of strategic innovation and development at St. Paul in London, said concerns about the railroad industry from an underwriting point of view also relate to the catastrophe risk exposure of the business and the fact that primary underwriters have no insurance claims data relating to the industry, Mr. Hamling noted.

St. Paul said it is focusing its U.K. efforts on providing coverage for new, potentially high-risk sectors, such as professional liability for hospital trusts and local municipalities.

Mr. Hamling said he runs a "strategic research team which looks for high-risk but risk-aware areas of business."

"The company began researching the rail industry about three years ago. Although it is a potentially catastrophic industry, it has a lot of positive aspects for the underwriter, said Mr. Hamling. The British railway "has been a heavily regulated industry for at least 100 years, with detailed statistics of railway accidents available for the last 50 years," he noted.

As a result of its research, St. Paul decided the best way to underwrite the rail industry is to "write a strong book. Our target always was to write a substantial portion of the industry rather than dabble in it," he said.

St. Paul insures 15 of the first 18 privatized passenger rail companies, providing up to (British pounds) 10 million primary coverage in most cases, said Mr. Hamling.

Catastrophe coverage, meanwhile, is provided through the Central Insurance Facility, which was created for British Rail in April 1994. The facility, jointly managed by London-based brokers Alexander & Alexander (UK) Ltd. and Bowring Marsh & McLennan Ltd., offers rail companies third-party liability coverage of (British pounds) 175 million ($293.2 million) excess of (British pounds) 5 million ($8.4 million).

The first (British pounds) 55 million ($92.1 million) excess of (British pounds) 5 million is placed in the London market on an occurrence basis. The insurance coverage, which stands alone from any underlying primary arrangements, is led initially by Royal Insurance Co. and Lloyd's of London underwriter John Murphy for the first (British pounds) 5 million excess of (British pounds) 5 million.

Guardian Royal Exchange P.L.C. and Lloyd's underwriter Bob Wallace lead the next layer of (British pounds) 20 million ($33.5 million) excess of (British pounds) 10 million, with Mr. Murphy and Reliance Insurance leading for (British pounds) 30 million ($50.3 million) excess of (British pounds) 30 million.

The remaining (British pounds) 120 million ($201 million) excess of (British pounds) 60 million ($100.5 million) is written in the catastrophe market with Bermuda-based X.L. Insurance Co. writing (British pounds) 40 million ($67 million) excess of (British pounds) 60 million, and ACE Ltd. writing the top (British pounds) 80 million ($134 million) excess of (British pounds) 100 million ($168 million).

The catastrophe part of the facility is written on a claims-made basis, provided that the injury or damage occurs after the beginning of the policy period.