Sphere Drake Underwriting Management (Bermuda) has been appointed the new lead underwriter of the Bermuda-based Risk Exchange Association, whose 12 members are captive insurance companies owned by industrial and commercial companies in the US and Europe.

The REA had temporarily ceased writing new business when Skandia America stopped serving as lead underwriter on January 1, 1993, due to a change of focus within the group towards more traditional forms of reinsurance coverage.

Despite giving up its lead underwriting role, the Skandia America group will continue to manage the Exchange, as it has done since the REA's inception in 1984, and will also continue to provide underwriting services, such as processing claims and allocating premiums.

Mr. Robert Rosser, vice president of Skandia International Risk Management, said: "After an extended search, which involved talking to several highly-regarded reinsurance carriers, the Risk Exchange Board of Governors decided that Sphere Drake offered a combination of attractive security and the fact that its sole purpose is to provide reinsurance to the captive market.'' It was important to the Board that the main underwriting facility was kept in Bermuda, where the Exchange is based, added Mr. Rosser.

Sphere Drake's president Mr. Jonathan Crawley has previously had a spell on the Risk Exchange Advisory Panel, which is a group of the Island's industry representatives who meet with members of the REA.

"We're very pleased to have established what's going to be a very close and mutually productive working relationship,'' said Mr. Rosser. "We're also pleased that Sphere Drake is bringing to the table lead underwriting capacity of $2 million in addition to what the members provide.

Mr. Crawley said that the Exchange will be seeking opportunities to expand in the US and Europe once the market hardens and added: "I will also be looking for greater use of the Exchange facilities to be made by its existing members as well as new members.'' By using the Exchange to reinsure a share of their captives' property, casualty and marine risks, members can expand significantly the risk capacity of their companies.

Use of the Exchange is primarily directed either for a pro-rata share of a large limit on property or marine risks or a layer of risk between working levels and catastrophe levels, usually known as the buffer layer on casualty risks.

Risks flow from the parent to the captive, or through an established fronting company to the captive, and then to the Exchange, which distributes the risk among its members but assumes no liability itself.

The Exchange operates on a facultative basis. It is not a pooling device. Most members let the professional underwriter do the underwriting selection for them, but some with sufficient in-house underwriting capability may review each submission before making a commitment.

The capacity or reinsurance limits available for business submitted to the Exchange is the aggregate amount of the individual member company commitments.

Specific commitments are made for property, casualty and marine and different dollar amounts are often committed to the three lines. Also, detailed underwriting guidelines can be provided to exclude certain types of risks or certain classes of business which a member does not wish to write.

In the past, the lead underwriter has accepted between ten and 25 percent of each risk which passes through the Exchange, thereby assuring the vested interest of the underwriting manager in the profitability of business transacted.

The Exchange takes no risk and, therefore, receives no premiums. Exchange operations are financed by an annual membership fee of $15,000 and a five percent commission on premium volume.

BUSINESS BUC