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Reinsurance placement necessary for catastrophe cover in Romania

Reinsurance placement necessary for catastrophe cover in Romania

SINAIA, Romania—After a recent setback, the Romanian government is once again moving forward with creation of a compulsory catastrophe insurance program for homeowners that could ultimately require a placement of !3 billion ($4.04 billion) on the global reinsurance market and may serve as a model for the region, experts said.

The program--which the government hopes will become law by July and operational by the start of 2008--would be the largest reinsurance program in force for catastrophe risk in Central and Eastern Europe, said Guy Hudson, executive director at Willis Re International in London, a unit of Willis Group Holdings Ltd.

He said there would be sufficient capacity in the reinsurance market.

Willis Re is part of a consortium of four reinsurance brokers chosen by the Romanian government to handle the program. The others involved are: Aon Re Global, the lead placement broker and a unit of Aon Corp.; London-based Benfield Group Ltd., the lead modeling partner; and Guy Carpenter & Co. GmbH, the Munich, Germany-based operation of Guy Carpenter & Co. L.L.C. in New York.

The catastrophe plan was the subject of a panel at the recent 10th Edition FIAR International Insurance-Reinsurance Forum held in Sinaia, Romania.

Under the proposal, the owners of Romania's estimated 8.5 million dwellings would be required to buy private catastrophe insurance in light of the country's risk of floods and major earthquakes. Companies that own private residences would be required to buy the coverage.

The program would cover a possible maximum loss of !3 billion for an earthquake and !250 million ($336.4 million) for a flood, brokers said.

Romanian insurers would sell the policies, which would be reinsured through a government-backed pool that would buy retrocessional protection from the reinsurance market, experts said.

"We will be coming to reinsurers during the latter part of this year to discuss the treaty program in great detail, to get the quotes and to look for the capacity that we need," said Harry Hatfield, senior vp of Guy Carpenter in London, in a presentation at the Forumul International Asigurari-Reasigurari event.

"Very many reinsurers all around the world will be involved in this," he said.

The !3 billion limit assumes 100% participation in the program, Mr. Hatfield explained. Initially, he expects a need for about !1 billion ($1.35 billion) to be placed in the reinsurance market.

Passage of the law to create the compulsory catastrophe pool was delayed this year because of a recent restructuring of the government.

To launch the program by the start of next year, sources said Romania's prime minister may decide to pass the law as an emergency ordinance. Parliament would take up the measure at its September session.