NEW YORK-The changing face of the insurance industry brings opportunities to savvy investors despite the generally poor return on equity that insurers record, an executive says.

As insurers bypass agents, reinsurers bypass insurers, risk managers self-insure and banks enter the insurance business, good investment opportunities will arise, said Jeffrey W. Greenberg, chairman and chief executive officer of Marsh & McLennan Risk Capital Corp.

"When things are changing, there's opportunities to win as well as to lose," Mr. Greenberg said a joint APIW/Chartered Property Casualty Underwriters Society meeting last month in New York.

MMRC, a unit of New York-based broker Marsh & McLennan Cos. Inc., was established to take advantage of the changes and invest in the insurance industry, he said. But the company tries to look at potential investments from a different perspective compared with other private equity funds, Mr. Greenberg said.

"We approach investments in the insurance industry from an operating viewpoint," he said.

Other investment funds look first at the equity and debt of a company and review how the company could be structured to benefit an investor, Mr. Greenberg said.

The first think MMRC looks at is "who are these people and do they know what they are talking about?" he said.

Then MMRC will ask, "can we believe what they are saying and does what they are saying add up?" Mr. Greenberg said.

Only when the insurer has passed the "smell test" will MMRC look at specific financial structures, he said.

By looking at a business from an operating point of view, MMRC also is in a better position to profit from a long-term investment in a company, Mr. Greenberg said.

While MMRC usually plans to hold investments for about five to seven years before cashing them in, future market conditions may make it impractical to sell investments in insurers for 10 years or more, he said.

So before making investments, MMRC managers ask themselves if they would be prepared to hold the investment for a prolonged period, Mr. Greenberg said.

"That is a very important issue because building a business takes time. Franchises take a long time to build; reputations take a long time to build; and both can be lost very quickly," he said.

By asking these questions and avoiding overcrowded investment sectors, investors still can find worthwhile buys in the competitive insurance investment market, Mr. Greenberg said.

In the past year, other investors have avoided insurance companies with low amounts of capital, often seen as too small to compete with large insurers, he said.

But some of the smaller insurers may have niches and business ideas worth investing in, he said.

"The insurance business is an arcane and difficult business, and it has its own barriers to entry," he said.

Other good investment opportunities that arose in the past year include the Aetna/Travelers merger, Mr. Greenberg said.

By bringing a more focused management to bear on the operations of Aetna, the business could perform better than most people thought it could, so MMRC was an early investor, he said.

Seeing an investment opportunity early is crucial to success, and one entity that may once have been a good investment but may no longer be is Lloyd's of London, Mr. Greenberg said.

"A couple of years ago, people thought that Lloyd's was some kind of communicable disease," he said. But, by discriminating among individual Lloyd's entities, shrewd investments were possible, Mr. Greenberg said.

Now, the numerous investors continuing to plunge money into Lloyd's may have missed the opportunity to make good returns due to the fall in insurance rates, he said.

Answering questions from the floor, Mr. Greenberg said one financial transaction that may prove beneficial for an insurer but will likely damage the insurance industry is CIGNA Corp.'s restructuring.

A Pennsylvania appellate court is reviewing CIGNA's reorganization into an active operation and a separately capitalized runoff facility for its long-tail liabilities (BI, Dec. 16, 1996).

Policyholders that bought policies from an insurer with a large amount of capital will end up filing claims with an insurer that has much less capital, Mr. Greenberg said.

"It doesn't help our credibility as an industry with the people we are serving," he said.

CIGNA has said it has $1.35 bil-lion more in the runoff facility to cover long-tail liability claims than it would have had if it had not reorganized.