American law partner Steven Schwab of Rudnick & Wolfe provided an overview of a burning issue in the US involving IBNR (Incurred But Not Reported) loss.

A line item on the liability side on cedants' and reinsurers' balance sheets was in the spotlight at yesterday's International Reinsurance Congress.

Mr. Schwab noted: "Whether a reinsurer is liable to the receiver of an insolvent cedant for IBNR is the issue of the day in the US in insurer receiverships.'' Receivers are coming under increased pressure to wind up estates and want to use convenient schemes, without due interference. Cedants and reinsurers are concerned that their financial interests and ability to be heard in claim estimation proceedings will be sacrificed in the process.

The US lawyer said, "Reinsurers are convinced that IBNR is not a claim, is not one of their liabilities, because there is no identifiable loss, no identifiable claimant, no evidence of damage, no finding of liability against an insured, no particular insurance policy to review on it.'' The largest spate of insurer receiverships in US history has left receivers looking for ways to augment access to pay claims.

Mr. Schwab proposed alternatives to the lawyer's solution of leaving things the way they are, allowing for a run-off or cut-off scheme in receivership.

He said the company could be rehabilitated, or a mutual could be de-mutualised. Another opportunity might be to affect a legislative solution.

Said Mr. Schwab, "The third broad category of alternatives is, from our perspective the most interesting, the most complicated and challenging, and therefore probably the most promising. Let's call it commercial alternatives.

"One alternative: privatisation. Restore receivers to protecting the public and the creditors with valid claims and turn over to experts specialised in the run-off or handling of receivership matters, that aspect of the business.

"Go through now what loosely may be called the equitisation of insurance companies.'' He also advocated considering the selling of reinsurance receivables to a third party, and using the money to pay out to creditors. Another way he suggested was to make the guaranty funds in the US partners in the receivership process, or even let them take it over.

He listed a host of other commercial possibilities including a suggestion to consider changing the rules of accounting for contingent claims in the US.

He argued that while IBNR is an issue, the bottom line issue at the root of the dispute in the US over the estimation of claims is the viability of the American receivership system as it currently exists.

DAVID FOX