“The main message at the moment is uncertainty,” he said. “Very few people are prepared to state right now what their underwriting philosophy is going to be at the first of January, apart from the need to raise rates and the desire to write specific exposures.”

At the end of the day, theres not enough money in the overall premium pot, which is why rates will go up, he said. Even if a reinsurance buyer is not directly involved with the WTC loss, the buyer will have to pay more to make up for the overall capacity deficiencies in the market, Mr. Geffen added.

If reinsurers suffered large claims, they will need to get that money back, he said. “Theyre also re-rating the business, and if there isnt much capacity around, the people who have the capacity will be charging more for it,” he explained.

This year, ceding companies have to get the price right, said Steve Bolland, senior vice president for Gill & Roeser, a New York reinsurance broker and financial adviser in the insurance industry.

“Those people with capacity issues are going to have a problem finding new capacity unless they get the pricing right immediately,” he said. “This is not the year to put your toe in the market at a low price just to see if you can place it, and then hopefully you can go back later in the year and say, 'Oh, alright, Ill give you a bit more money,' because the capacity might not be there later.”

“Capacity is available at a price, its fair to say,” said David Shipley, underwriter for Lloyds Syndicate 2791, which is managed by Managing Agency Partners Ltd., referring to coverage being provided until year-end to insurers that have run out of cover, called “backups.”

During other hard markets–in 1986, for example–there was no capacity available at any price, but “it hasnt gotten to that yet,” he said.

In answer to the speculation by some in the London market that underwriters might embark on some opportunistic underwriting in the months ahead, Mr. Shipley said that no underwriter can risk losing its core business just to focus on areas that get high rates in the short-term. All reinsurers have to try to achieve a balance between their longer-term relationships and the opportunities in the market while theyre available, he said.

“If a company has capacity in a certain area, theyre going to target some of what they would consider the best prices in those areas, and they might shift capacity around to take advantage of that,” said Mr. Bolland.

Dennis Purkiss, group chief executive officer for Alea Group in London, said the “renewal season is going to be a big test this year. I dont expect it to be anything other than late, and thats probably an understatement.”

If the World Trade Center attack had not happened, the January renewals still would have been very tough, he said, and with the disaster the hard market has accelerated.

He agreed with others interviewed that London market underwriters “probably will want to break down whole accounts to offer more specific coverage,” he said. “If the World Trade Center has taught anybody anything, its a lesson of the aggregation of loss from sources where maybe you wouldnt have expected it.”

Mr. Bolland said that a couple of markets in Bermuda are saying that instead of all-risks coverage, they might return to natural-perils coverage for wind and earthquake. “Then you dont have to exclude terrorism because its never going to be covered,” he said.

“Once terrorism starts getting excluded from the reinsurance, youre going to start seeing all the property insurers exclude it from the original policies,” Mr. Bolland predicted, noting that this wouldn't generally be a problem except for high-profile buildings.

“I also think you might see the end of global covers,” he said. “I heard one or two underwriters last week saying they might write globals excluding the U.S., and then [the ceding company would have to] buy a specific U.S. coverage.”

He added that “the broader your coverage, the less capacity you have. If they write a global [program] excluding U.S. [risks], thats one set of capacity and then they can write another coverage in the U.S. and get another set of capacity.”

“We were in a market for the last 18 months that was improving [for sellers] and we were looking for more improvements in the next year,” said Steve Tirney, president and chief operating officer of PMA Re in Philadelphia. “Now that has very much accelerated. Rates are up, terms and conditions are much tighter.”

Before the World Trade Center, rates were probably going to rise 15 to 20 percent across the board, he said. “But now it looks like those prices, with the acceleration, could be going up maybe 30-40 percent,” he noted.

The retrocessional capacity is likely to tighten up, which means that reinsurers now have to make choices and decide how theyre going to use their capacity, according to Mr. Tirney.

“The workers' comp catastrophe market is virtually gone,” he said. “Anybody that was writing comp that had an accumulation exposure or was perceived to have an accumulation exposure like for the West Coast quake–the famous Los Angeles 3:00 p.m. quake–theyre not going to have that protection anymore.”

As a result, underwriters are going to tighten up their capacity on known accumulating areas, he warned. “Therefore, primary companies that would place large chunks of workers comp in the market to protect themselves against occurrences are going to find that theyre not going to be able to buy as much coverage as they did before,” he said.

In the past, PMA Re would give a rate for workers comp business and found it was higher than the market, he said. “As a result, we dont have a lot of comp business,” he noted.

“Now were giving those kinds of rates with limited reinstatements and [the broker] says, Forget it.” But sure enough, he said, they come back in a few weeks and say, 'Can we talk?'

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, October 22, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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