Strong Demand For U.S. RE's Alternative Reinsurance Products
Not since the 1991-1992 re-newal season has the demand for U.S. RE's Successor Products been so great. Both reinsurers looking to maintain adequate levels of retrocessional coverage and primary companies worried about price hikes in 2000 are turningtoU.S. RE.Themostdramatic change in today's marketplace is the shrinking of retrocessional capacity compared to this time last year. Indus-try consolidations and withdrawal from this line of business by several companies, notably in Australia, appear to be the primary causes.
According to Brian McGuire, Senior Vice President, "the demand for alternative catastrophe retro coverage with financially strong, well-established retrocessionaires has driven a number of buyers to seek quotations from us earlier than usual in order to satisfy retrocessional requirements dictated by their year-2000 business plans."
Because U.S. RE's products are widely known for their ability to satisfy reinsurance accounting requirements, Mr. McGuire expects available capacity will be used up quickly. The reason for this is that unlike pure finite reinsurance arrangements that involve little, if any, risk transfer, products such as U.S. RE's Successor Products involve significant downside underwriting risk which the alternative market reinsurers must aggregate. There-fore, as the alternative market reinsurers use up capacity, the premium margins for such capacity should continue to increase, particu-larly for first-time buyers. That's why Mr. McGuire encourages buyers seeking this capacity to get in the market early to achieve the best possible terms.
Primary companies also are showing greatly increased interest in these products as evidence mounts that traditional reinsurance prices will rise at the beginning of next year. Many buyers are positioning them-selves to increase their alternative reinsurance program limits while concurrently reducing the traditional program limits to achieve reduced reinsurance costs for 2000.
As loss ratios rise, particularly in the United States, no reinsurance manager wants to see reinsurance costs go up. Reinsurance managers want solutions to control costs. That's why they choose U.S. RE. "We offer our clients realistic solutions and a menu of options to maintain or reduce costs as opposed to simply offering pricing on the basis of expiring program limits," said Mr. McGuire.