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U.S. reinsurers are turning with increasing enthusiasm to international business as a way to grow despite the soft domestic market.

Although the international market is also soft, reinsurers believe there are still promising opportunities abroad, even if it is still too early to determine their ultimate success.

To date, the focus of U.S. companies has been primarily on the London and continental European markets. More attention is also being paid to the Asian and Latin American markets, though these are more often considered long-term rather than immediate revenue boosters. But wherever reinsurers write business, it is tailored to each market's particular needs, and is not a clone of their U.S. business.

U.S. reinsurers' focus on international business is part of the continuing globalization of the reinsurance market.

"Certainly in terms of the international environment, reinsurance has long been an international business, with risk transfer freely across national boundaries," said Ken Zuckerberg, an analyst at Moody's Investors Service Inc. in New York.

"Until recently, however, U.S. companies have mainly focused on national or regional markets, and they have, for the most part, not held large positions in a global context," said Mr. Zuckerberg.

But in recent years, "all the dominant direct writers have made major overseas acquisitions," including General Re Corp.'s acquisition of Cologne Re and Employers Reinsurance Corp.'s Frankona Re and Aachen Re acquisitions, he said.

The 12 years of the down cycle, as well as a lack of organic growth opportunities in the United States, have all encouraged the move toward international business, said Mr. Zuckerberg.

U.S. reinsurers are "just like everybody else," said Peter T. Pruitt, chairman and chief executive officer of Willis Faber North America Inc. in New York. "This is a very difficult market, and they're expanding their horizons," he said. "I would presume, for most U.S. reinsurers, writing international business is right at the top of their priorities from a strategic standpoint," said Mr. Pruitt.

About 30% of Risk Capital Reinsurance Co.'s premium now comes from non-U.S. ceding companies, according to Bonnie Boccitto, chief underwriting officer for the Greenwich, Conn.-based reinsurer.

"We definitely have the philosophy that we want to be a global reinsurer," she said. "I think that we need to. In order to grow one needs to diversify, and for us, diversification comes in two forms," which are business line diversification and geographic diversification.

Geographic diversification, said Ms. Boccitto, "makes one somewhat more immune to cycles in the industry."

While "these cycles are becoming more and more closely tied as it becomes a more global industry. . .I still think we see enough differences in the cycles and the potentials around the world that it's still a very good strategy to diversify geographically," she said.

The factors driving the move toward international business are "the same that's driving the acquisition binge in much of the industry," said John Bailey, a partner in Pricewaterhouse Coopers' insurance practice in Chicago.

"Volumes are down, and consolidation in the primary industry keeps growing. And so you have companies out there looking to keep the pipeline flowing," said Mr. Bailey.

"You can't go to Bermuda or to Zurich without running into people you know from down the street," he noted.

Mr. Zuckerberg said the export of the U.S. concept of tort liability, which has made both directors and officers and employment practices liability coverage more popular internationally, also is encouraging U.S. reinsurers to expand internationally.

"These are high-severity events when they happen, so it's important the type of reinsurers that would cover such things would be really financially secure ones," said Mr. Zuckerberg, noting that reinsurers such as General Re fit the bill.

The globalization of reinsurance intermediaries has played a role, as well.

"It is somewhat easier to develop international business these days, because many of our U.S. brokerage firms have overseas affiliates or branches," said Risk Capital Re's Ms. Boccitto.

Willis T. King, vice chairman of sales at reinsurance intermediary Guy Carpenter & Co. Inc. in New York, said, "I think we have really been very successful in creating a global marketplace where just about every client wanting to buy reinsurance on a global basis now has access to that, and where people (who) want to acquire business from different parts of the world also have access."

Most people still feel a local presence is needed for working-layer business, said Mr. King. But this is no longer true for non-working layers. "A good, solid U.S. reinsurer in Iowa can write clash or contingency business just about everywhere in the world based on the knowledge and exposure information they can access from Iowa," he said.

The origins of the business are becoming less important, he added. "It's just a matter of tracking your aggregate exposure and deciding what your appetite is."

Reinsurers' approach to international business will depend upon their size, said Don Watson, a director at the rating agency Standard & Poor's Corp. in New York. The largest U.S. reinsurers, such as General Re and Employers Re, perhaps are less likely to make acquisitions at this point because "it's not clear how much extra value someone else would bring, particularly at today's prices."

Middle-tier companies, such as Greenwich, Conn.-based NAC Re Corp., however, "are seeking to develop a global franchise. . .so they're probably under more pressure to acquire," said Mr. Watson. "You're not going to get it by growing your own business. You're going to have to acquire someone else's companies," he said.

At the third tier, he said, companies such as Chartwell Reinsurance Co. and Trenwick America Reinsurance Corp., both based in Stamford, Conn., "don't have the capital to make big international acquisitions, so they're more likely to either be the target of an acquisition, or they're going to be making small investments," such as Chartwell's acquisition of Archer Managing Agency Ltd., a Lloyd's of London agency.

"It's a way for them to start bringing in a more diversified book of business, not in a big way, but in a fashion that allows them to get the benefit of an internationally diversified portfolio," said Mr. Watson.

The London and European continental markets remain the most popular destinations for U.S. reinsurers.

"I would say the London market is the No. 1 reason that the companies are looking to acquire business relationships," he said. Buying capacity at Lloyd's through the acquisition of a managing agency "seems to be a cheap alternative to buying a company," Mr. Watson added.

Richard E. Cole, Chartwell Re's chairman and CEO, said: "We picked the Lloyd's market as the way to develop worldwide for us. That's a platform to continue to develop business throughout the world."

Michael Satz, chairman of New York-based financial guarantee reinsurer Capital Re Corp., about one-third of whose business is now international, said he plans to stay focused primarily on Western Europe.

Among other reasons, he said: "I think culturally it's easier for us. It's where we have our best client relationships."

Asia and Latin America are considered less attractive right now by U.S. reinsurers. Continental Europe has a lot of wealth, which means that just one office "can obviously access one heck of a lot of business in terms of dollars," said Mr. King of Guy Carpenter.

"I think there's probably less incentive in Latin American and Asia," though a lot of Latin American business can be accessed through Miami, while Asian business can be accessed throughout the United States, said Mr. King.

"The American reinsurers are seen only intermittently throughout Asia," said Russell R. Miller of San Francisco-based Russell Miller Corporate Finance Inc.

"The Europeans seem to have a better foothold in Asia," said Mr. Miller. "For one thing, Europeans probably were more active in pre-World War II times with building networks," as well as in their colonies.

Reinsurers that already have a presence in Latin America include Risk Capital Re, which owns 25% of Latin America Reinsurance Co. Ltd., a reinsurance operation it helped to start along with Bermuda-based EXEL Ltd., according to Ms. Boccitto.

"Latin America is a longer-term investment play for companies because it's a developing market, which means the insured value in Latin America is small, relatively speaking," said Mr. Watson of S&P.

However, "the growth opportunities will occur as the economies develop," he said.

Alan Murray, senior vp at Moody's, said, "What we tend to find in emerging markets is there's a tremendous amount of capital and number of companies chasing a rather tiny volume of business. (Reinsurers) can move their capital to new markets much faster than these new markets can develop and mature and, therefore, the growth pace is severely constrained.

"On the other hand," he continued, "on a long-term basis, there are certainly sound arguments for making investments at this point in parts of the world that offer significant growth opportunities for the 21st century, including Latin America, Asia and Eastern Europe."

Because reinsurers in these geographic areas must understand the business that primary insurers are writing, and because the regulatory environment is less rigorous than it is in the United States and Europe, they must be more cautious.

"I think you're seeing a learning curve and a lot of slow growth" to date in Latin America and Asia among U.S. reinsurers, said Mr. Bailey of Pricewaterhouse Coopers. He noted, however, that "you're beginning to see a lot more activity," though with little fanfare.

Asia and Latin America both represent long-term opportunities, agreed William J. Adamson, CEO of CNA Re, a unit of CNA Financial Corp. in Chicago. While there are many things reinsurers can do in a mature market, the needs are more basic in emerging markets, he said. And as new companies come in, he noted, there is an opportunity to develop new relationships.

"I don't think you can be a global reinsurer without being in both developed and developing countries," said New York-based Peter Aubrey-Smith, senior vp-international operations with St. Paul Re, which has offices around the world.

The business that U.S. reinsurers write internationally is not necessarily a mirror of their domestic business.

Once in foreign countries, "U.S. companies, in general, seem to be really focusing on product innovation as a way to expand their international reach," said John L. Ward of the Cincinnati-based Ward Financial Group.

Whether reinsurers have an already-established international presence or are just putting together a start-up operation, "the angle they generally seem to be following is to look at the unique culture and economic situation of the foreign countries, which does vary quite a bit from country to country, and look for ways to creatively put a new reinsurance product together that meets the unique ways of that international marketplace," said Mr. Ward.

"It is certainly evident that people will do things in their overseas offices" that they will not write domestically, said Tal P. Piccione, president and CEO of reinsurance intermediary U.S. Re Corp. in New York.

In some instances, for example, they may write liability classes of business they would not write in the United States because of a more favorable foreign legal climate, "although that's changing," said Mr. Piccione. "The climate overseas is beginning to resemble what's happening in this country."

And on the property side, the frequency of hurricane losses is going to be a lot less in Europe than in the United States, which would influence the business written as well, said Mr. Piccione.

The products written depend upon the region, said St. Paul Re's Mr. Aubrey-Smith. Developed areas, including Europe, "have a need for more sophisticated products." They are seeking excess-of-loss products, including products with varying amounts of risk transfer, he said.

But in developing areas, "you find that companies are looking more for capital relief" and more proportional business, he said.

Mr. Aubrey-Smith said St. Paul Re constantly is trying to persuade clients in developing areas to move toward excess-of-loss business, because it helps the clients retain more premium and makes more effective use of their capital.

It is too soon to tell ultimately how successful the foreign ventures of U.S. reinsurers will be, say analysts.

There is still much more international presence in the United States than U.S. presence abroad, said Mr. Ward.

"I think the jury's still out," he said. "I would not characterize the success to date in that regard as relatively outstanding." U.S. reinsurers, he said, are now just beginning to evaluate the opportunities internationally.

Mr. Murray of Moody's said, "Even at the simplest level, the management of an overseas operation is a challenge. And many of these companies don't really have the scale where they can have complete infrastructures in all the markets where they do business, which raises questions about risk control and profitability."

Mr. Zuckerberg of Moody's agreed that the reviews are mixed on the success of U.S. reinsurers abroad. "It's very early in the process to know whether every company's joint venture or acquisition overseas has been a home run," he said.

But in light of several large-scale reinsurance mergers, including Berkshire Hathaway's acquisition of General Re, "what is ultimately clear is that there's shakeout at both the large and the small end of the reinsurance business, and there's definitely a need not only to have capital but to also have a geographic presence and direct relationships with clients," Mr. Zuckerberg said.

"What it means is that a company that doesn't have a game plan that is focused on being a global entity probably won't be able to survive by being a domestic player over the next five to 10 years," Mr. Zuckerberg said. "It's critical if you want to be in the top tier of reinsurers."