Did the world's largest reinsurers pay too dearly in recent, highly publicised acquisitions of smaller reinsurers? A leading Bermuda reinsurer has questioned the wisdom of strategies for growth adopted by the world's `big four' reinsurers.

Herbert Haag, president and CEO of Bermuda-based catastrophe reinsurer PartnerRe said a lot of questions remain unanswered about the surprising sums they paid out.

The quest for market share in global reinsurance began heating up last summer with the announcement of a number of new alliances -- involving four of the world's largest reinsurers.

General Re acquired National Re for $940 million after already gaining controlling interest in major international reinsurer, Cologne Re.

Employers Re, whose ultimate parent is General Electric, took an initial stake of 86 percent in Frankona Re and all of Aachen Re.

Swiss Re bought Mercantile & General Re for $2.7 billion, while Munich Re shelled out $3.3 billion and assumed $700 million in debt to absorb American Re.

In a letter to clients, Mr. Haag has said the price was "very high'' in each case.

He said, "The record price of $3.3 billion Munich Re paid for American Re was a substantial $2.5-billion premium over book value, and `goodwills' paid in the other transactions are not far behind.'' What, he asks, makes these firms so attractive to the world's largest reinsurers, with rates and conditions eroding almost daily? What makes them so valuable, that such reinsurers were willing to pay a `goodwill' larger than any reinsurance loss they ever paid? How do insurers or the acquirers' shareholders benefit? Said Mr. Haag, "In terms of economics, these transactions can appear to have an accretive effect for shareholders if the `goodwill' is amortized over a period of 20 to 30 years, or written off immediately against the existing equity.

"However, for the acquiring reinsurers to achieve a meaningful return on their investments, the acquired companies will have to produce greater annual profits than in the past.'' Acknowledging the battle for global market share, Mr. Haag accepted that the four power blocs of reinsurance provide excellent security and quality, but he questions if their acquisitions have led to any additional quality.

"The undisputed fact,'' he said, "is that for a ceding company, the number of unrelated quality reinsurers has reduced.

"The barriers to enter the reinsurance market are low, as proven by the Bermuda catastrophe reinsurers in 1993. Presently, the capacity and terms of trade available are attractive to the insurance industry -- not least as a result of the increased competition between the large, direct writing reinsurers and the broker market.

"When the tide turns, the question will be whether the acquisition premiums paid by the `big four' will pay dividends. We watch with interest.'' In just its fourth year of operation, PartnerRe is soon expected to announce a significant bottom line profit for the year to December 31, after three quarter figures had them 18 percent ahead of the year before.

With third quarter earnings of $54.4 million, nine month profit was pegged at $182.7. PartnerRe is one of the few remaining pure `cats' that began forming in Bermuda during the summer of 1993. Some of the others have already begun successfully to seek diversification across lines of business.

PartnerRe's loss burden for the 1996 year was modest, despite an active storm season. And the company's stance during the annual January renewals was to restrict their underwriting limits to accommodate only those risks which meet the reinsurer's technical requirements.