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Marsh sets up sidecar to write cat coverage

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NEW YORK—Clients of Marsh Inc. at the end of this month will have access to additional working-layer capacity for their global property catastrophe exposures through a new Bermuda-based facility created by the brokerage.

MaRI Ltd., an acronym for Marsh Risk Innovations, was developed in collaboration with Bermuda-based ACE Ltd., investment bank Morgan Stanley and law firm Willkie Farr & Gallagher L.L.P. MaRI will act as a sidecar in providing capacity through capital market investors, but, unlike typical sidecars, the facility will offer capacity directly to primary policyholders.

With ACE acting as a highly rated fronting company, MaRI will be able to directly assume cat risks such as windstorm and earthquake for Marsh clients, said Philip V. Moyles Jr., executive vp of Marsh in New York.

MaRI will begin writing cat risks Jan. 31 and expects to offer $400 million in capacity through May renewals, Mr. Moyles said. "Based on demand or market conditions, we could build $1 billion" of capacity for MaRI, he said.

While sidecars generally are designed to last only a few years, Marsh believes MaRI can operate longer term, Mr. Moyles said.

"There's a continuing need, at least in the next year or two," for vehicles to provide additional cat capacity, said Ed Zaccaria, president of ACE Global Underwriters in Philadelphia. "Beyond that, it's hard to say."

In monitoring the sharply contracting property insurance market during 2005 and 2006, Marsh considered "a myriad of options to help clients" get more catastrophe capacity, Mr. Moyles said.

"MaRI is an augmentation of capacity for our clients," said Bob Howe, Marsh's global property practice leader. "Clients have major issues obtaining wind capacity."

Bradley Wood, senior vp of risk management at Washington-based Marriott International Inc., said, "Any additional capacity and creative thinking around it would be welcomed" by risk managers. "Most risk managers are starved for more capacity but value the underwriting discipline insurers are taking. It requires more participants than ever before to meet the (insurance buyers') demands, from a price and stability standpoint."

ACE plans "to supplement MaRI's cover with our own," said Mr. Zaccaria. MaRI will offer up to $25 million in limits per property account, on ACE's admitted paper. This will be available within the first $35 million of coverage, and ACE could write "a meaningful piece" of that, offering coverage in addition to what is available through MaRI, he said.

Hector Mastrapa, who manages Marriott's property risk program as vp-insurance, said additional capacity is welcomed, but he hopes MaRI will be willing to "deploy that capacity elsewhere than in the primary layer. It's challenging as a company procuring insurance to find players to fill upper layers."

Although MaRI can write risks globally, Marsh expects most of the capacity will be used by North American clients. The only risk classes that MaRI does not plan to write are energy and stand-alone builders risk, Mr. Moyles said. "It's a broad-based application to serve clients."

Investors in MaRI include affiliates of Lehman Bros. and Marsh & McLennan Risk Capital Holdings. MaRI will be administered by Marsh unit Victor O. Schinnerer & Co.

To allay possible questions of Marsh directing business to a reinsurer in which a Marsh unit holds a stake, Mr. Moyles said, "There will be no incremental commission as Marsh is placing business into MaRI. Most Fortune 1000 clients are on a fee basis, so there is no incentive for our brokers to send business to MaRI. Marsh & McLennan will disclose to every client" its relationship with ACE, MaRI as well as Schinnerer, he said.

Schinnerer will receive fully disclosed profit commissions from MaRI's investor group six months after accounts close, Mr. Moyles said.

The chances of Marsh steering business to MaRI are eliminated, Mr. Moyles said, because any business placed into MaRI must be accepted by ACE, and Marsh protocol requires the broker to obtain clients' approval before placing any account. "If they opt to use MaRI, we'll need to get clients' approval before going to the market," he said.

Marsh's investment in MaRI is "not something I'm worrying about," said Mr. Mastrapa. "I don't see it driving" Marriott's coverage purchasing.