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AUSTRALIAN REINSURERS LOOK OVERSEAS

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Australia's reinsurers are increasing their business from international ceding companies and positioning themselves for long-term growth in the Asia region.

Australia-based reinsurers agree there is little growth in Australia's soft domestic reinsurance market, and they are looking elsewhere for profits.

GIO Re, a unit of GIO Holdings Ltd., is the largest Australian reinsurer, followed by Reinsurance Australia Corp. Ltd. and New Cap Reinsurance Corp. Ltd.

The three companies, all based in Sydney, dominated the Australian market for international business, writing $1.5 billion Australian ($929 million) in the year to June 30.

But several insurers, such as Sydney-based MMI Ltd., NRMA Insurance Ltd., FAI Insurances Ltd., and QBE Insurance Group Ltd., are also writing more reinsurance than they did in the past, said Paul Allison, managing director of the Sydney, Australia-based reinsurance broker MBR Reinsurance Pty. Ltd.

QBE Insurance Group Ltd.'s subsidiary, Sydney Reinsurance Co. Ltd., writes domestic and international reinsurance.

Greg O'Neill, general manager of Sydney Re, said the company's gross written premiums for the financial year to June 30 were $92 million Australian ($57 million), up $1 million Australian ($619,000) over the 1996 financial year. Domestic business made up 50% of its premium volume; the rest was mainly Asian business.

Paul L. Williams, deputy managing director of New Cap Reinsurance Corp. Ltd., said Australia attracts considerable reinsurance premiums from overseas, through the efforts of Australia's reinsurance brokers.

MBR's Mr. Allison said international insurers and brokers want to place reinsurance in Australia because it is politically stable and has "clean capital" that is secure. "Security and capacity go hand in hand," he said.

Mr. Allison also said Australian reinsurers have "world class" underwriting staffs and have developed a reputation for fast responses to claims. He noted, for example, that GIO Re was one of the first reinsurers to pay a claim after Hurricane Andrew hit the United States in 1992.

Most Australian reinsurers are writing very little domestic coverage. Mr. Williams said only 1.3% of New Cap Reinsurance Corp. Ltd.'s business is from Australian cedents.

Chris Sykes, Sydney general manager of Reinsurance Australia Corp. Ltd., said only 3% of ReAC's business is domestic. Mr. Sykes said the Australian arms of multinational insurers frequently place reinsurance with U.S. and European companies, reducing the domestic business available to Australian reinsurers.

While the Australian reinsurers are writing business from all major centers, including Europe and the United States, they see Asian markets as long-term opportunities for growth. Africa and the Middle East also are targets.

Nearly 22% of New Cap Re's premiums come from the United States, according to the reinsurer's annual report. But the company also is looking to Africa and the Middle East, which together accounted for about 3% of its 1997 business, for new business.

"There is a limit to how much United States business we want to write, because it is so heavily hurricane- and earthquake-exposed," he said.

Mr. Allison said other Australian reinsurers are also focusing on Africa, South Africa and the Middle East. And all see opportunities in Asia despite the economic downturn, he said.

Mr. Williams said New Cap Re sees long-term opportunities in Asia, but he has no plans to rapidly expand its Asian book of business. The company is "sticking a toe in the water, rather than taking a blind leap of faith," he said.

Mr. Allison said Indonesia and Malaysia present good opportunities for reinsurers, because those countries' standards of living are improving.

China also is an emerging reinsurance market, particularly for infrastructure projects, but brokers and insurers have to be patient and develop the market, he said. Mr. Allison said China has a high natural disaster exposure, which means catastrophe opportunities for reinsurers.

But Sydney Re's Mr. O'Neill is more cautious, saying China still is too underdeveloped and that he does not see any immediate opportunities.

Mr. Sykes said China has "true potential down the track," and ReAC plans to open an office in Hong Kong. ReAC expects approval from Hong Kong authorities in the next month.

Despite his reservations about China, Mr. O'Neill said there is growth potential in Asia. Sydney Re has a Singapore office, and it opened representative offices in Japan in May and South Korea in June.

Mr. O'Neill said he expects to see good growth from April 1 renewals next year in South Korea and Japan, but he would not give figures on current Asian business or on projected premiums.

New Cap Re also plans new offices, but Mr. Williams is coy about locations. "We want to make sure we get the right economy and the right team, and expansion will not detract from Sydney as the prime underwriting center," he noted.

ReAc has offices in Morocco and Miami. In July, ReAC moved its French office from Nice to Paris. Mr. Sykes said it was difficult to recruit staff in Nice, so ReAC shifted the office to a location where it could attract experienced staff.