Looking forward, looking back.

Will the reinsurance industry undergo as many changes in the next decade as it did in the last? Janina Clark asked some of the market's key players to predict what is in store for the next millennium...

JIM DUFFY: By the end of the next decade, at least one third of the
world's reinsurance business will be transacted over the Internet.

A second prediction is that consolidation in the reinsurance industry will
not only continue, but will produce more dramatic changes. By the year
2010, more than half of the top 25 reinsurers will be gone from the
rankings. In fact, five of the current 10 largest reinsurers in the world
will no longer be independent entities and will be gone from the list.

There will be few companies that call themselves 'reinsurers' because the
distinction between insurance and reinsurance will have disappeared.

The traditional definition of insurance as protection against "fortuitous
acts" to address pure, rather than speculative, risks will no longer

Instead, the concept of "enterprise risk" will replace traditional
insurance and reinsurance risk.

This will present a world of both broader and more volatile risks, as well
as broader opportunities, to those engaged in assessing and managing risk.
The world will be a lot riskier!

HENRY KEELING: The most successful reinsurers in the next decade will be
those that most effectively dominate the convergence zone between
traditional (re)insurance markets and the capital markets.

They will have the ability to transform large blocks of otherwise
non-homogeneous exposures into securitized packages that the capital
markets will be capable of absorbing on a competitive basis - something
they currently are clearly unable to achieve.

Those reinsurers will be rewarded by the retention of portions of that
transformed risk, and by assuming the residual basis risk that remains in
the structure.

In addition, those same carriers will be providing integrated financial
solutions to a broad range of clients, enabling those clients to manage
not only traditional insurance and reinsurance exposures, but also a range
of financial and enterprise risk that currently resides in other financial
risk transfer mechanisms, or is not even appreciated as having risk
transferable characteristics.

MAX TAYLOR: Current trends such as consolidation, greater sophistication
and analysis will continue. There will undoubtedly be major changes in
distribution methods, primarily driven by technology.

The most radical shift will, I suspect, come in the evolution of capital
provision. Capital efficiency will become paramount. This could manifest
itself in multi-layered capital structures with core capital underpinned
by contingent capital provided through a variety of financial market

WILHELM ZELLER: I am not one of the growing group of prophets who predict
the future of the property/casualty market (mostly expressing their
wishful thinking). Instead, I focus on the facts.

I do not see any reason why the property/casualty market should turn any
time soon. The market continues to be vastly overcapitalised, and this
capital is still chasing volume and market share while sacrificing
underwriting discipline.

Our underwriters are, therefore, instructed to presume that the present
market situation is going to continue for another three to five years.

Only this assumption will protect us from avoidable losses. Our
underwriters will simply not renew unattractive business, rather than
lulling themselves into the illusion that the market cannot continue much
longer as it is.

This latter approach is the perfect way of making the wrong concessions
year on year and getting ever deeper into underwriting deficits.

VICTOR BLAKE: There will be a continuation of consolidation, resulting in
fewer and larger companies. This consolidation will not only feature
reinsurers merging, but will also involve a convergence of financial
influences such as banks and reinsurers. I also foresee an increase in
alternative methods of risk transfer.

JACQUES BLONDEAU: Reinsurance is going to become more and more

Insurance and reinsurance are being reorganised, with reinsurers becoming
more the risk-takers, and primary insurers becoming mass-market

When historians look back at the reinsurance market of the 1990s, what
will they pick out as the key events and/or trends?

HENRY KEELING: Historians will look back on the 1990s and find them
notable for five reasons:

- the dramatic surge towards consolidation in all levels of the

- the first tentative steps towards the establishment of Internet selling
and e-commerce that transformed the industry in 2002;

- the fall and rise of Lloyd's through the successful implementation of

- the lack of attention paid by the industry to averting the Y2K disaster
which wiped out 30% of the US and European property/casualty capital and
surplus; and,

- the emergence of Bermuda as a premier insurance and reinsurance

MAX TAYLOR: The 1990s have effectively seen a complete reshaping of the
global reinsurance market through consolidation, newly created entities
and Lloyd's own reconstruction and renewal.

WILHELM ZELLER: Natural catastrophes caused immense difficulty at the
beginning of the decade. The end of the 1980s and even more so the
beginning of the 1990s - especially for the reinsurance industry - were
marked by an accumulation of natural catastrophes. In 1992, Hurricane
Andrew represented the largest loss the insurance industry has ever
experienced from a single event.

Concentration: As a result of these losses, in the first half of the 1990s
many reinsurance companies went out of business. The reinsurance divisions
of primary companies, including Lloyd's, withdrew, either entirely or in
part, from the market. Many of the existing entities were taken over by
larger groups. The process of concentration, which started at that time,
has gained momentum, despite the turnaround in market conditions.

Hard market: The payments in the early part of the decade, creating a hard
market between 1993 and 1995, was totally unexpected. The years 1994 to
1997 have been the most profitable years in reinsurance for decades.

This development has been supported by very few, low natural catastrophe
losses and booming capital markets.

Securitisation: In the middle of the decade - as a result of the decrease
in reinsurance capacity - capital markets were discovered as (re)insurance
risk takers.

VICTOR BLAKE: Historians will single out consolidation and the dominance
of the major players, especially the mega-brokers.

JACQUES BLONDEAU: The over-riding change is the move from a fairly
fragmented industry to a concentrated one.

JIM DUFFY: Almost seven years after it occurred, Hurricane Andrew remains
the one event with the most far-reaching impact on our industry in the

In addition to its immediate impacts, bringing record losses to US market
participants and literally putting some out of business, it led insurers
to rethink their views of reinsurance capacity and reinsurance

Likewise, it led insurers and reinsurers to alter their long-term
strategies and change the way they manage their potentially volatile
aggregate exposures.

For the industry as a whole, it shattered old conceptions about the
capacity to provide catastrophic protection and continues to drive the
movement for new ways to tap alternative structures and markets, including
the capital markets, for that capacity in the future.

Two important trends have helped shape the reinsurance industry in this
decade, and will continue to influence our industry as the new century

- continued significant consolidation in the insurance and reinsurance
market; and,

- the beginning of the use of the broader financial markets, with their
e-commerce capabilities, to address both traditional and non-traditional
risk needs.

For you, what was the key event of the 1990s?

VICTOR BLAKE: Hurricane Andrew because it raised the bar as to the minimum
levels of capital adequacy necessary to be a player in the business.

The realisation that $1bn of capital and surplus only represented medium

JACQUES BLONDEAU: Globalisation. A few years ago, you could talk about the
US market or the French market. That is no longer the case. This is one of
the few truly global markets in the world.

JIM DUFFY: Hurricane Andrew.

HENRY KEELING: For me personally, the most important event of the 1990s
was the establishment of Mid Ocean Re in November 1992, which paved the
way for the emergence of Bermuda as a force in the global reinsurance

MAX TAYLOR: Personally, my appointment as chairman of Lloyd's at the
beginning of 1998.

WILHELM ZELLER: The most remarkable event in the middle of this decade
was, for me personally, the occurrence of something that - in spite of my
long experience as an executive in the reinsurance industry - I had not
expected: positive underwriting results in a reinsurer's income statement
due to the favourable market conditions.

JIM DUFFY, President St Paul Re

HENRY KEELING, President and chief executive, XL Mid Ocean

MAX TAYLOR, Chairman, Lloyd's

WILHELM ZELLER, Chairman of the executive board, Hannover Re

VICTOR BLAKE, Chairman, LaSalle Holdings and CNA Re (Management) Ltd

JACQUES BLONDEAU, Chairman and chief executive, Scor.
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