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A.M. Best Looks To Future Of Reinsurance Industry

Survival of the fittest seems to be the outlook for reinsurers over the next couple of years, according to a new Special Report from A.M. Best Company. While the Best's analysts view the near-term future of the reinsurance industry with cautious optimism, they foresee continued dominance by the global giants and the likelihood of more smaller companies withdrawing from the market or being absorbed by larger players.

"While A.M. Best believes that the dynamics of the reinsurance market will continue to influence the changing face of this industry segment, it is likely that the leading players will maintain their dominant role in the landscape," commented Elizabeth Farrell, Best's Vice President, in the Special Report. "Beneficiaries of the flight to quality, these reinsurers maintain influential market shares, which when coupled with their renewed emphasis on underwriting should sustain a hardening in the market and further their leadership roles."

Compared to the largest reinsurance companies that have the capital "to absorb the adverse trends in both investment values and loss reserves, others are falling prey to the confluence of events that have plagued the industry in recent years. Since September 11, there have been more than a dozen withdrawals from the market by companies that either ceased writing business voluntarily. or those that have gone into bankruptcy," the report pointed out.

"In the late 1980s, the industry consisted of numerous small companies, generally with surplus of less than $100 million. Today, the reinsurance market has evolved into a market dominated by a few, relatively large, global organizations, having policyholders' surplus in the billions of dollars.No doubt, the future business strategies and actions of these dominant players, for the most part, will shape the future evolution of the market."

Despite the generally optimistic forecast, the Best's analysts predicted that, "economic, social, environ-mental, and geopolitical events will continue to financially stress the industry, causing a further rift between the weaker and stronger in this market. Those that thrive in the environment will possess the financial fortitude to withstand current adverse trends and the ability to embrace and effectively manage change while maintaining a strong commitment to sound operating fundamentals."

The Special Report, "The Changing Faces of Reinsurance," and the full, 20-page report, "Reinsurers Move Forward with Cautious Optimism" may be obtained through the web site, www.bestweek.com.