A panel of executives at the World Insurance Forum this week concluded that insurers were actively seeking to conduct realistic risk assessment and manage their own expectations in a variety of ways to better serve clients who grow ever more sophisticated.

The panel members, who collectively handle around $14 billion in reinsurance premiums each year and have combined reinsurance assets of $40 billion, also said clients who are looking to use reinsurance programmes to address a wide variety of often unrelated business issues, and insurers are equipping their operations with the knowledge and technological tools required to assess those programmes and pricing in the market more rigourously.

The panel brought together reinsurance buyers and brokers and sought to address among other topics how best to measure the effectiveness of reinsurance programmes, whether the remit of reinsurers has changed or is too narrow, pricing issues and the use of technology in the industry, including the advent of electronic trading. Panel moderator Nick Golden, a founding member of reinsurance consultancy the Donald Macdonald Partnership LLP and former director of reinsurance for Royal Sun Alliance, led the discussion.

He suggested that since the requirements of reinsurance vary by role and function within an insurer and the perceived benefits range from high-level strategic for the CEO to low level operational for a portfolio manager, unrealistic expectations may result.

?Insurers have become more adept at assessing the technical costs of retaining risks in order to determine whether a risk should be transferred to a reinsurer,? said Reg Campbell, Head of Group Reinsurance at Australian insurer Promina Group Ltd. ?They?re ensuring they have as informed a view as possible before going out to the market to look for what they perceive as appropriate pricing for a reinsurance structure.?

Michael Cady, Managing Director of broker Guy Carpenter & Company agreed: ?Clients are looking at using reinsurance a lot more strategically; everyone is more sophisticated and clients can capture more data than ever before.

?The world has changed and the role of catastrophe modelling has also increased in importance within the industry,? added Mr. Cady. ?We have invested a lot in our modelling capabilities to ensure we reflect and meet the requirements of our clients.?

Nicholas Michaelides, Chief Reinsurance Officer of ACE Overseas General sounded a note of caution about the heavy reliance on modelling in the industry, saying: ?There can be a bit of a ?herd mentality? around what the models say, and they can be extreme in the results that they produce.?

Ultimately these results may skew the assessment of the risk in question which has ramifications for pricing of any reinsurance programmes that might be required.

The panel also gave a nod to the growing power of industry rating agencies, indicating in the discussion that security levels attached to reinsurers have even greater significance for insurers as they are assessing pricing in the market. And according to Takeshi Oiwa, General Manager Corporate Risk Management of Tokyo-based Sompo Japan Insurance Inc. ?price should reflect security?, and insurers should not be surprised at seeing greater price differentiation between the higher and lower rated reinsurers.

But Mr. Cady pointed out that paying more money for better security does not necessarily mean getting better claims performance from the reinsurer, while Mr. Campbell said that insurers typically seek concurrent pricing for reinsurance which can mean that prices may ?float? upwards, following the quote forwarded by the highest rated reinsurer.

?We feel that non-concurrent pricing offers the insurer the opportunity to get reinsurance programmes for appropriate rates in accordance with the individual security levels of the reinsurer,? he said.

Christian Milton, AIG Vice President of Reinsurance added that reinsurers with higher security ratings are also typically in a better position to bring new capital to the market to support the needs of insurers: ?The better quality reinsurers with higher security have a much better ability to raise new money if required.?

The panel felt that insurers are also looking at security ratings more closely in relation to executing downgrade clauses included in their reinsurance contracts. While they did not feel that a drop in a reinsurer?s rating alone would lead many insurers to terminate a contract early (depending on the related circumstances and what the insurer regards as a significant downgrade), having the clause provides a measure of protection for an insurer?s company if, for example, a reinsurer starts to experience solvency issues.

?Downgrade clauses are a big change in the market and have been driven in part by things like the growth in the run-off industry,? said Mr. Milton.

Using the clause to terminate a contract early can at least give the insurer the ability to be released from future premium payments to the reinsurer, even if it does not address the latter?s liabilities. The panel conceded that a proliferation of early contract terminations could lead to the rapid and earlier demise of some distressed reinsurers ? which might have been able to recover if they were still receiving a sustainable level of premiums.

Ultimately, Mr. Michaelides felt, ?it could be better for reinsurers who are failing to shut down (earlier) rather than have them incur greater liabilities?.

Regarding technology, most of the panel felt that electronic trading offered the prospect of obvious benefits to the contracting process in terms of reducing costs and increasing efficiency, even though the concept has not been fully embraced by the industry yet, particularly the broker community.

Mr. Michaelides stated that developing electronic trading systems would not be a matter of disintermediation, which may be driving the perceived lack of enthusiasm among brokers.

?We are piloting four renewals on a web-based hub right now,? said Mr. Michaelides. ?I see a huge opportunity to use technology to give us contract certainty, simply to have a much more efficient, consistent mechanism for confirming offer and acceptance, as well as facilitating integration of our data with the reinsurer?s information.?

He added that conducting the process electronically would also provide an on going, easily accessible record of transactions with each reinsurer contracting with the company, assisting with corporate governance requirements as well as other tracking issues.