NAIB: EXPANDING REINSURERS WALKING A FINE LINE

PHOENIX-As the reinsurance industry expands into the alternative risk transfer arena, one issue on many reinsurers' minds is whether they are now competing with their ceding company customers.

"This is a challenging issue for all of us," said Kenneth J. LeStrange, president of Am-Re Managers Inc., an alternative risk transfer unit of American Re-Insurance Co. in Princeton, N.J.

"We've tried to walk a fine line not to compete too directly with our customers, yet keep our own viability and success in play," he said.

"The fact is, it's a question that is front and center for all of us," said Heidi E. Hutter, chairman, president and chief executive officer of Swiss Reinsurance America Corp. in New York.

"There is room for us to be operating together," she said. However, "it is not an easy situation."

In today's market, Swiss Re must look for new ways to work in the market, which includes developing and marketing alternative risk transfer products. However, "we have to balance that with the interest of our ceding companies who themselves are in these markets and sometimes see us as a competitor."

Ms. Hutter and Mr. LeStrange participated in a panel discussion on reinsurers and their interest in the alternative market during a session at the National Assn. of Insurance Brokers' annual convention held in Phoenix last week.

Mr. LeStrange said American Re has addressed the situation by creating a separate subsidiary that deals exclusively with the alternative risk transfer distribution system and clients and does not engage in reinsurance with insurers.

"We have a confidential Chinese

wall that keeps information coming into us and it never transcends

the wall. We've also tried to work with our insurance clients to develop alternative market techniques, particularly in the cases of regional and mutual companies," Mr. LeStrange explained.

But, "most of our customers have reconciled the fact that one day, Am-Re may be a competitor, but more often a collaborator" in helping to service their clients, he said.

At Swiss Re, Ms. Hutter said the reinsurer is willing to provide a lot of capacity and has no exclusive distribution channel for its products, including its alternative risk products.

"Anything we've done, we'll at least make it available and share it with all of our ceding companies, which they in turn can use for their clients," she said.

Harry L. Richter Jr., chairman and CEO of Genesis Underwriting Management Co., a unit of General Re Corp., said the alternative risk unit targets program business and is not a player in the Fortune 1000 marketplace because Genesis does not want to be in conflict with its parent's clients.

"There is no way that at some point in time you're not going to be in competition with your client or a client of your parent company," said Mr. Richter, directing his comments to reinsurers providing alternative risk transfer products to the large account market.

"We try to avoid head-to-head competition," Mr. Richter. "Our business profile is business that requires a great deal of underwriting apparatus."

The panelists greed that alternative risk transfer growth lies in the middle market. They also agree, however, that with the current soft commercial pricing environment, growth is slow.

Daniel G. Marren, chairman, president and CEO of CORE Insurance Holdings Inc. in New York, said that despite the soft market, his company is growing. CORE targets the middle market, he said.

"Those that just look at price will stay where they are" in the standard market, Mr. Marren said.

The way to migrate an existing client into the alternative market is through the structure of the alternative program.

"We try to compete on product, not on price," Mr. Marren said. Alternative risk mechanisms also give a policyholder greater control over its long-term cost of risk financing, which is a selling point.

In answering a question on whether investment banks will be competitors or supporters of the reinsurers in the alternative market arena, David E. Wasserman, chairman, president and CEO of Centre Reinsurance Co. of New York, said reinsurers should look to investment banks as an intermediary.

While he acknowledges investment banks eventually may compete with reinsurers, he said, "They are a source of business."

"They are the ones talking to the CFOs every day. They have a focus on shareholder value, capital and share price. But until now, they haven't been thinking about how insurance companies can help their customers create shareholder value," Mr. Wasserman said.

"They are going to provide, ultimately, another source for capital," he predicted.

Kathryn J. McIntrye, publisher and editorial director of Business Insurance, moderated the panel.