Discussing the implications of a global market at the Reinsurance Congress, an underwriter provided his view of the ideal meaning of global trading from an insurance perspective as "local business solutions syndicated to world markets at low transaction costs to provide predictable capacity to manage risk.'' Jeremy Hindle, vice president and international underwriter at Mid Ocean Re is of the view that we are not quite there yet.

He outlined how the insurance market has changed with the consumer more aware of price and distribution channels and much more claims conscious.

He said, "I think the future characteristics of global trading will show fewer and better capitalised reinsurers. Clearly for cat business, the entry price is now $500 million. And it wasn't that long ago when it was 25 million and that wasn't even paid up.'' "It is important to understand the expanded risk transfer requirement of our consumers, the industrial society. With their insurance risks, they have multi-national risks to look after, and therefore currency risks and liquidity risks on their investment portfolio.

"The CEA (California Earthquake Authority) was a classic example of how the magnitude of transactions is increasing.'' He predicted the size and quality of capital will increasingly be important and said that in recent years there has already been a flight to that quality capital.

Mr. Hindle said, "Capacity is clearly important from a single risk and an event perspective. I think profitability will become more important. You have to be able to replenish your capital base.

"Bermuda has got a tremendous advantage, a low cost base. We don't pay tax, communication is excellent. And expenses, apart from housing, are very good.

"The other part of success is from the managerial side. Quite clearly, you must have good individuals. Their skill is as a specialist, not as a generalist. This is why we hire individuals to go out and write niche business in a global way.

"The quality of management at Bermuda companies today is really representative of how good this is. There's underwriting discipline and you have to be able to control your business. What are your accumulations? Where are they? We will see more diversifying and consolidation.'' The impact of global trading, said Mr. Hindle, will include a move to a reduction in acquisition and transaction costs. But he questioned whether the capital market players would be prepared to lose principle as well as interest income.

There will be more competition and prices will come down as a result of lower costs, although the risk price must be maintained. There will be more product innovation. Clients, he said, are looking for broad-based risk management.

They all want multi-year contracts, multi-class contracts and multi-territory contracts. There will also be an increase in self-insured retention.

He said, "From the insurers' perspective, you must have a critical mass in your business or die. Expense reduction must be the target for these companies.

"And obviously policy retention is vital too. For a home owner's policy on the UK, it could take up to three years to pay for the cost of putting the business on the books in year one.'' For insurers there will be worsening underwriting margins, which will lead to pressure for greater investment returns. This could be an opportunity for the reinsurance market, because there would be excess-of-loss required to protect the returns and enable higher yields.

There will also be more consolidation, driven in part by the desire to access markets.

He said, "The reason for the Eagle Star and Zurich deal is to access the USA.

"From the reinsurers' perspective, wider coverage is not good news. Rates are still falling and our margins are being squeezed. Worldwide covers is a very inefficient use of our capital. We have much less control over where this business is.

"We sought to diversify our business. Mid Ocean Re now has less than 30 percent of its premium income coming from catastrophe business.

"Consolidation will continue to occur and maybe the role for the reinsurer is to become a transformer to the capital markets, because our business is that much more transparent. Of course, we are all hoping for cheap retrocession capital, too.'' REINSURANCE CONGRESS CON BUSINESS BUC