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Insurers appear to have recovered from the problem of unrecoverable reinsurance.

While uncollectible and overdue reinsurance balances were seen as a potential threat to insurer solvency several years ago, industry consolidation, heightened concern for security and tighter regulatory reporting requirements have contributed to a steady dwindling of the problem, industry sources agree.

"I don't hear anybody talking about it as being a big deal," ob-served James Shamberger, senior vp with the Reinsurance Assn. of America in Washington.

Steven Bolland, senior vp with intermediary Gill & Roeser Inc. in New York, agreed. "I don't see it as being a significant problem cur-rently," he said. "Uncollectible reinsurance should have fallen off people's annual statements by now."

While individual insurers still may have troubles, "for the industry as a whole, it does not appear that delinquent reinsurance recoverables are anything to lose sleep over," a National Assn. of Insurance Commissioners official concurred.

It wasn't always that way.

In the early 1990s, many ceding insurers still were suffering the ill effects of having dealt with large numbers of relatively small rein-surers that provided cheap capacity in the previous decade.

Many of these reinsurers went under or slowed claim payments as they ran into financial trouble, and reinsurer failures in turn hastened the demise of some ceding compan-ies.

Industry observers estimated that unrecoverable reinsurance might erode 10% or more of the industry's surplus and often cited bad rein-surance along with underreserving as threats to property/casualty in-surer solvency.

In an effort to uncover and measure the extent of ceding insurers' exposure, the NAIC in 1989 began requiring companies to report and take a charge against their surplus for a portion of any authorized reinsurance balances more than 90 days past due and not in dispute.

Beginning with 1992 annual statements, the penalty provisions were extended to cover past due unauthorized reinsurance in cases where the ceding company did not draw on letters of credit or other collateral.

Insurance regulators, though, still thought there were too many loopholes available to ceding companies that wanted to get around the reporting requirements, so the NAIC tightened the rules again as of year-end 1993.

Under the revised rules, ceding insurers no longer can exclude amounts in dispute from schedules showing current and past due reinsurance recoverables. The NAIC also defined clearly when the 90-day clock for determining overdue recoverables starts running, short-circuiting attempts by some ceding insurers to avoid penalties by extending their due dates for pay-ment.

Regulators and many industry officials hoped the rules would spur ceding insurers to deal with slow-paying reinsurers-by stepping up collection efforts or writing off recoverable balances, for example-and tighten up the payment terms of future reinsurance contracts.

In fact, data collected by the NAIC shows that reported overdue balances increased only marginally through 1993, despite tightening of the penalty rules, and that delinquencies still represented only a small percentage of industry sur-plus.

In 1992, U.S. ceding insurers reported $1.27 billion in recoverables more than 90 days past due from U.S.-domiciled reinsurers, or about 0.62% of industry surplus of $205.3 billion, according to NAIC data.

The next year, when tighter penalty rules took effect, that total expanded to $1.43 billion past due, still 0.62% of year-end 1993 surplus of $231 billion.

Past due balances from non-U.S. reinsurers-including Lloyd's of London and other London market insurers-totaled $1.16 billion, or 0.57% of industry surplus, in 1992.

This expanded slightly in 1993 to $1.36 billion past due, or 0.59% of industry surplus, NAIC figures show.

Overall, past due balances totaled $2.43 billion, or 1.18% of industry surplus, in 1992, and $2.79 billion, or 1.21% of industry surplus, in 1993.

The NAIC hasn't compiled similar figures for years after 1993, but the totals would very likely be in the same range, one NAIC official said.

"The consensus of the regulatory community looking at numbers of this magnitude is that if there was a problem. . .the (annual statement) penalty may have served its intended purpose, which was to accelerate the collection process," the official said.

The reinsurance industry, mean-while, was taking another step toward improved security: consolid-ation.

Burned by unstable small reinsurers, security-conscious ceding companies throughout the 1990s have moved their business to a smaller number of large, highly capitalized reinsurers.

This trend became one of the forces driving mergers and acquisitions among reinsurers, many of which realized they would have a tougher time competing against larger companies, Mr. Bolland observed.

While uncollectible reinsurance may no longer be a big problem in itself, "its impact on the business has been very substantial," he said.

There may be some ceding insurers "that went out and got cheap reinsurance in the 1980s, and the ghost hasn't left them yet," the RAA's Mr. Shamberger said.

But "this push to consolidation as well as the push to quality has cured most everybody's problems," he said.