A year of the euro.

Despite concerns about the euro's lack of strength against the dollar, in the year since its introdu...

Despite concerns about the euro's lack of strength against the
dollar, in the year since its introduction in 11 member countries of the
European Union the world's reinsurers have embraced the new currency.

"The euro is beneficial for two reasons," explains Norvert Schmetz, euro
co-ordinator at Munich Re. "Firstly because of the cost saving from its
flexibility in placing assets, and secondly because different currencies
can be restrictive when making payments on settlements. With the euro we
don't have to make so many foreign currency transactions."

Little on account

The reinsurance market's enthusiasm for the euro is not always reflected
in company accounts, however. Guy Butler, finance director at St Paul Re,
says: "The euro represented under 2% of our European turnover for

In Sweden - which has yet to join European Monetary Union (EMU) - Lars Ek,
chief financial officer of Sirius, has seen more euro business, although
he claims it has some way to go before it becomes the company's dominant
currency. "Roughly 50% of our business is European and of that around
10-20% is in euro," he says.

Susanne Dohm Riley, assistant general manager at Copenhagen Re in Denmark,
another non-EMU member country, believes that it is individual reinsurers'
exposure to particular countries that dictates the quantity of euro
business transacted.

Sirius, for example, says it has seen most of its euro business in place
of Deutschmarks and francs, suggesting that Germany and France are at the
hub of euro activity.

St Paul's Mr Butler is surprised that the company has not seen more euro

He is particularly surprised that most of what it has seen has been
through London rather than other continental countries, given that the UK
is another European Union member that opted out of EMU.

Michael Hannan, chief executive of the London Processing Centre (LPC),
confirms that London is seeing euro business. "A significant amount (of
euro business) built up during the year," he says, adding, "3% of
settlements through the LPC were in euro - in monetary terms EUR328m."

A slow start

The international nature of reinsurance is undoubtably why the euro is
proving popular among reinsurers.

Any reluctance to accommodate the currency is on the primary side,
according to Munich Re's Mr Schmetz. "There has been a slow transition
because direct insurers have been slow and therefore clients are slow,
leading to the number of treaties being made in euro being very slow," he

Copenhagen Re's Ms Dohm Riley agrees: "We see more business in local
currencies at the moment because that is how the local companies receive
their income, and if they don't then buy in the same currency, they will
be taking on the currency risk."

Exchange rate risk is not a problem for EMU members, she points out, as
their currencies are linked to the euro, but non-EMU members must still be

Ms Dohm Riley insists that reinsurers will not push clients into taking
currency risk, maintaining: "The reinsurance currency market is determined
by the primary companies because reinsurers don't want to impose
unnecessary difficulties on them."

Meanwhile, broker Aon suspects that there is another reason for the slow
start bemoaned by Mr Schmetz and that there could now be an almost
immediate increase in euro business.

Spokesman Peter Tritton says that "a very modest proportion" of Aon's
business is being transacted in euro, but considers that "it is possibly
because of concerns that people had over Y2K - that they felt reluctant to
change their (accounting) systems last year".

Now that the 'millennium bug' has failed to materialise, he predicts a
change of pace in 2000. "I suspect that we will see a lot more (euro
business) this year," he says.

However, an increase in the number of euro transactions could mean that Ms
Dohm Riley's concerns over exchange rate risks could become a reality for
companies domiciled in non-EMU member countries.

Sirius' Mr Ek believes that as the euro becomes more and more established,
any remaining currency risk from non-EMU members will eventually be taken
by the cedant.

He explains: "If five years down the line we (as reinsurers) offer
policies in Danish krone or Swedish krona, no-one will be interested."

He believes that the quantity of business available in euro and other
major currencies will make reinsurers reluctant to take business that
involves currency risk, forcing European reinsurers in non-EMU member
countries to adopt the euro regardless of whether their country's
government continues to opt out.

He foresees, as a result, that primary companies in non-EMU countries,
whose income will still largely be in their national currency, will
therefore have to take the exchange risk if they want to reinsure.

Sweden is already making provisions that will allow reinsurers to use
euro. It will pass a law allowing companies to report in euro later this
year, although Sirius has yet to decide whether it will take this

Euro or not?

Mr Ek sees the potential dangers in not doing so. "If you are outside of
EMU and present your accounts in krona, for instance, there will be many
people who won't understand the currency and so companies outside EMU will
have to present their accounts in euro anyway," he says.

The fact that reinsurers are international makes the benefits of reporting
in euro clearer.

However, the situation is perhaps less clear-cut for domestic insurers who
are not as likely to want to change their accounting practices. Mr Ek
sympathises with their position: "Things could be very hard for non-EMU
members, and companies domiciled in those countries could suffer."

However, primary insurers can take heart that they will not be left out in
the cold by brokers. "We've still got a good distribution network," says
Aon's Mr Tritton, "and we're used to dealing in a number of different
currencies, so it doesn't make much difference (that some business will
not be in euro)."


- January 1999: Austria, Belgium, Finland, France, Germany, Ireland,
Italy, Luxembourg, the Netherlands, Portugal and Spain join EMU. Denmark,
Greece, Sweden and the UK opt out.

- March 2000: Greece will make an offical application for EMU entry.

- March 2000: Sweden's Social Democrat Party will decide its future policy
on EMU at its party congress. EMU entry is not expected before 2002.

- September 2000: Denmark's Social Democratic Party Congress. A positive
consensus from this is expected to result in a date - most likely 2001 -
being set for a referendum on EMU entry.

- January 2001: Greece hopes to enter EMU.

- January 2002: The 11 EMU member countries' existing currencies will
cease to be legal tender.
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