REINSURANCE RATE SLIDE UNABATED

BADEN-BADEN, Germany-It will take a lot more than a plunge in stock prices to halt the continuing slide in reinsurance rates.

But few reinsurance executives meeting in Baden-Baden, Germany, last month could predict exactly what it would take.

Certainly more than one major catastrophe, they agree. Two? Three? A natural catastrophe combined with a stock market crash? A general and consistent increase in losses?

The only thing that was certain to the attendees of the meeting was that the fall in stock prices that agitated world financial markets the week of the Baden-Baden meeting would not be enough to end the soft market.

Even before markets rebounded later in the week, reinsurers said not enough damage had been done.

The 7.2% fall in the Dow Jones Industrial Average on Oct. 27th was little more than an invitation to institutional investors that had earlier exited an overheated stock market to return, said Wilhelm Zeller, chairman of the executive board of Hannover Reinsurance A.G.

"If you look around the world, institutional investors are sitting on huge amounts of liquidity," he said.

There is so much capacity in the reinsurance market that there would have had to have been a real stock market crash accompanied by several catastrophe losses over a two-year period to harden the reinsurance market, said Martin Oesterreicher, head of marketing for central and eastern Europe at Swiss Reinsurance Co. in Zurich.

"If a stock market crash and a very large catastrophe loss coincided, as they did in October '87, then I'm sure that would make a difference," said Sue Gwynne, planning and marketing director at Eagle Star Reinsurance Co. Ltd. in London.

She added, however, that for some time there haven't really been any large losses, and so "it will take a few good fires and a catastrophe" to really make a difference.

"One or two major cat losses is not going to change this market," said John Engestrom, chief executive of Liberty Re Ltd. in London.

Insurers have higher retentions than 10 years ago, so even large losses have less impact, he said.

"It's not going to impact the major players," Mr. Engestrom said.

Most reinsurers have enjoyed significant profits over the past few years and, as a result, have built up large surpluses, so even if the stock market plunge had not been reversed it would have had a negligible effect on reinsurers, said Chris Adams, director of the non-marine division-Europe at Sedgwick Reinsurance Brokers Ltd. in London.

"There won't really be much change until reinsurers lose money for a couple of years on pure reinsurance," he said.

The reinsurance market is so soft that a stock market crash combined with a natural catastrophe would not be enough to turn the market, said Dirk Lohmann, chief executive officer of Zurich Re, the reinsurance subsidiary of Zurich Insurance Co. of Zurich, Switzerland.

Most insurers and reinsurers don't invest much in stocks, and those that do have enjoyed large gains from those investments over the past several years, Mr. Lohmann said.

The only thing that the volatility in the markets might do is limit the entry of fresh capital into the reinsurance market, Mr. Lohmann said.

Inadequate catastrophe pricing is not the main problem facing reinsurers, Mr. Lohmann observed.

'The real problem is the general run-of-the-mill business and a cat would not change that. . . .The U.S. has had a soft casualty market since the mid-1980s and we have had several cats since then," he said.

Also, most European fire reinsurance business does not have a catastrophe exposure, Mr. Lohmann said.

Most areas of the market will not turn until there are consistent losses over a sustained period, he said.

If the market does sustain sufficient losses to end the downward trend in rates, reinsurers sometimes forget that the losses have to be paid before rates start rising, said Mr. Oesterreicher of Swiss Re.

"People talk about a large claim as if it were a pot of gold at the end of the rainbow. Maybe it is, but to get there you have to take a beating first," he said.