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Insurers are having a difficult time determining friends from foes among reinsurers.

In the heat of the soft market battle for premium dollars, reinsurers increasingly are encroaching on insurers' turf, capturing program business that traditionally has been written by primary insurance companies.

Insurers aren't happy about sending premium dollars to reinsurers that may also become competitors.

"They say their mission is not to compete with their ceding company clients," said Robert Cohen, senior vp at United National Insurance Co. in Bala Cynwyd, Pa. "But at the end of the day," some primary business undoubtedly is going to be lost to reinsurers, he added.

Reinsurers are "so hungry for premiums they are doing business around us as well as through us," said John K. Latham, president and chief executive officer of Colony Insurance Co. in Richmond, Va.

Stephen J. Vaccaro Jr., president and CEO of Glen Allen, Va.-based Essex Insurance Co. said, "We watch it very closely; we are concerned about that."

Reinsurers writing primary business is "nothing new" but "probably is getting more prevalent now," said Jerry Karter, president and CEO of SCOR U.S. Group in New York.

Reinsurers claim they simply are trying to grow in the current marketplace and are trying not to take business from their cedents.

"There are quite a number of opportunities that have presented themselves in the program business, and it is simply a matter of capital allocation" on the part of reinsurers that can issue primary paper, according to Steven J. Bensinger, president of Stamford, Conn.-based Chartwell Reinsurance Co.

"Different organizations are taking different approaches to that program business," he said. "We as an organization are very careful that we don't compete with our core insurance clients in their areas of business, and so that's something that we've been monitoring very carefully."

Writing the coverage "should have a very positive impact on most reinsurers in that they are accessing additional sources of business other than traditional reinsurance," said Philip W. Mitchell, senior vp at intermediary Towers Perrin Reinsurance in Philadelphia.

However, he added, "They have to be cognizant of any negative impact that they could feel as a result of competing against their existing clients."

Michael J. Snead, chairman of Admiral Insurance Co. in Cherry Hill, N.J., said, "We don't like it, but we understand that everybody is trying to survive."

Mr. Cohen of United National acknowledged that for reinsurers, "it's a delicate balance" to grow by writing primary business and not "cause their ceding companies to run away."

Chartwell's Mr. Bensinger said, "Where we can establish programs that meet our profit criteria and we're not stepping on our reinsurance clients' turf, we believe that's a profitable way to grow in this market."

"We don't do a whole lot of program business, but we're seeing more of it all the time," said Steve Tirney, president and chief operating officer of Philadelphia-based PMA Reinsurance Corp.

"We selectively underwrite it," he said.

Jeremy Wallis, president and CEO of Florham Park, N.J.-based Chatham Reinsurance Co., said primary program business accounts for about a quarter of the reinsurer's volume. The company specializes in such lines as surety and non-standard automobile coverages.

"It started life as a value-added service with surety" and grew from there, said Mr. Wallis.

Program business can be profitable but takes a lot of work to underwrite, according to reinsurers and insurers.

Mr. Bensinger said, "Right now, it's running at a more profitable rate than the traditional reinsurance business, but the only way to actually maintain that level of profitability is to be extremely selective in the programs that we're writing, because there are diamonds in the rough."

Because most reinsurers are unfamiliar with writing primary coverage, they eventually may choose to leave it alone, some insurers predict.

Mr. Cohen said reinsurers are realizing that "getting in isn't as easy as it sounds. There are issues you face as a ceding company that you don't as a reinsurer."

Reinsurers are having trouble setting up quickly to write primary business and respond to policyholders, he noted. In writing primary coverages, reinsurers find that licensing requirements have to be met in each state where business is written.

"Most reinsurers are not as good underwriters in the primary business as they are in the reinsurance industry," said Mr. Vaccaro of Essex. "It's a different climate; there are different jurisdictions they need to be concerned about."

"I don't think the majority of them really understand what arena they are getting into. I think when their results begin to show that, they're going to get out again," he said.

Mr. Bensinger said, "The due diligence involved in both sides getting together on these programs is pretty significant, because there's a lot involved."

Therefore, he added, "you try to assure looking at a fairly long relationship," otherwise, "you amortize a pretty high degree of effort over a short period of time, and that doesn't make a lot of sense for either party."

Due diligence appears to be lacking in some deals reinsurers are writing, and the oversight may one day catch up with them, according to Mr. Latham of Colony Insurance.

"It's worrisome to me in the sense that I think in a lot of cases not enough due diligence is being done in the underwriting process," he said.

It may eventually happen that a weakened company will underprice a risk and find itself in trouble when claims come due, Mr. Latham noted.

Not all reinsurers that issue primary paper are a threat to their insurer clients, said Steven Bolland, senior vp with reinsurance intermediary Gill & Roeser Inc. in New York.

In some cases, a risk retention group or captive doing program business wants a reinsurer to issue a primary policy, he explained.

To meet that need, "a lot of reinsurers have insurance companies just to have the ability to issue paper in order that they can access the reinsurance," Mr. Bolland said. "I don't think they are saying, 'I want to go down and compete with my clients.' They're doing it in specific situations where a client might need them to issue paper on their behalf."