“Its not that the capacity isnt there anymore. In certain cases, its moving around,” agreed Rod Fox, chief executive officer of the Dallas-based intermediary, observing that Lloyds casualty capacity is diminishing.

These intermediaries and other experts, however, said there are certain exceptionspockets of trouble where capacity is slipping away. One such area is program business produced by managing general agents, they say. (See related article, page 16.)

In the workers compensation catastrophe area, they say, lessened capacity is creating some new opportunities.

“A lot of the accident and health carve-out capacity just went away,” said Gary Sandvik, a managing director for Guy Carpenter in Stamford, Conn. While property-casualty reinsurance markets have stepped in, it is “at dramatically higher” pricing and not all of the lost workers comp capacity has been replaced by p-c reinsurers, he said.

Mr. Sandvik listed ACE as one of the companies offering replacement capacity. In late December, ACE Tempest Re USA in Stamford, Conn., announced that it had teamed up with The Hartford Financial Services Groups HartRe subsidiary to offer workers comp catastrophe cover with $20 million in capacitywith limits of $10 million offered from each.

Mr. Fox described price increases for workers comp excess-of-loss reinsurance as “huge,” in the range of 10-to-15 percent, while retentions are typically being pushed up.

“I think thats probably the most opportunistic piece of the market,” Mr. Karon said. “Its kind of acting like Bermuda did with property-catastrophe after [Hurricane] Andrew [in 1992].”

“A lot of people are putting out some really high prices and doing some price discovery, and my sense is, there havent been a lot of takers.” Right now, he said, “the buyers and the markets are fumbling towards the middle.”

Mr. Fox agreed. For the workers comp catastrophe business being offered out of Bermuda with $100 million limits, “theres been a lot of offers, but not a lot of takersbecause the prices are too high,” he said.

One representative of a domestic reinsurance company said: “There is a market for workers comp reinsurancesometimes including terrorism.”

But with many treaties coming up for renewal in April or July rather than January throughout the industry, “there are going to be material rate increases for workers comp catastrophic reinsurance coverages,” said the reinsurer, who did not want to be identified for this article.

For some of the covers that were in place last year, the prices will be up six times, he said.

This reinsurer predicted that the next area of “fairly dramatic firming” will be on reinsurance for fidelity, surety and bond programs. From a reinsurance perspective, that has been “a fairly troubled line for the last two or three years,” he said. Noting that while it looked like 2001 was improving from a claims perspective, the bond losses sustained as part of the Enron collapse have put real pressure on reinsurers to change terms, conditions and prices dramatically.

A number of reinsurers have withdrawn from that market completely, he reported. The ones that are staying in are requiring much higher prices.

The net effect will be to push buyers to keep substantially higher net retentions in order to ameliorate rate increases, he said.

No one suggested that new capacity was coming into the surety reinsurance market. Some experts said, however, that there will be new entrants to replace lost capacity in the medical malpractice reinsurance market.

W.R. Berkley Corp. in Greenwich, Conn., for example, announced it has formed a company to offer reinsurance in this area as well as excess coverage for self-insured healthcare providers.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, February 18, 2002. Copyright 2002 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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