While parts of the international re/insurance sector are at their healthiest for a number of years, some areas of the business are still in crisis mode, and the one that most often is cited is that of US medical malpractice business. The problems facing medmal are manifest: loss cost inflation, compounded by sky high jury awards in certain US states; less than adequate risk management practices in the sector; low interest rates squeezing the returns on investment portfolios which were factored into past pricing methodologies. As a result, fewer primary carriers are operating in the market, and some medical practitioners are facing a decision between self-insuring under one mechanism or another, or changing their practices. These problems, and some possible solutions, were discussed at a roundtable Global Reinsurance hosted in Hartford in September, and the debate is published in this issue of the magazine.
Tort reformOne of the areas highlighted during the roundtable was that of tort reform, and in particular whether it will prove, yet again an at least temporary panacea for the business. In this current medmal crisis, the opinion of the roundtable participants is that tort reform is not enough in itself; as much as anything else, the insurance industry needs to take a look at its rating practices, and become less reactive in its view of the costs of the business.Such issues are influencing the wider debate surrounding market conditions leading up to the next round of renewals. Judging from discussions taking place at this year's Baden Baden gathering, the European equivalent of the NAII meeting, property rates generally are stabilising, with brokers in particular projecting a 10% or so fall for property cat business in certain geographic locations. True, this year's North Atlantic hurricane season proved gentle in terms of losses reaching the reinsurance community, but both Fabian, which hit Bermuda in early September, and Isabel, which ripped through parts of the US eastern seaboard soon after, fired a warning shot over the bows of catastrophe underwriters. And although the Atlantic season is all but over, it is still worth remembering that it wasn't until December 1999 that the biggest natural catastrophes of that year, at least for the reinsurance community, struck in northern Europe, when Lothar, Martin and Anatol collectively caused about $10.5bn insured loss, when indexed to 2002 figures, according to Swiss Re's sigma report on catastrophes published earlier this year.Received wisdom for casualty and specialty lines is that there is still some hardening to come in the run-up to 1/1/2004. As well as the medmal crisis, directors' and officers' business (still reeling from the plethora of shareholder suits in the US, and increasingly further afield), and errors and omissions (blamed by now defunct London broker Bradstock as the reason for its demise) are proving increasingly difficult to place. The newest player on the international re/insurance scene, Bermuda-headquartered Quanta, is writing certain specialty lines out of its newly-opened New York operations, located in the Rockefeller Center, but appears coy when it comes to revealing too much information about its backing and its plans. It has registered companies in the UK and Ireland, though neither appear currently to be licensed to transact re/insurance business, and the word on the street is Quanta will be headquartering its European operations in Dublin, with a London branch office. This has proved a popular route for the newer players in the market with a more relaxed regulatory regime enabling a quicker entrance to the market, and a gentler tax regime. But not all the new gang have taken this path. Endurance Worldwide, the London market operations of Endurance Specialty, decided that going for full UK authorisation was the way forward, and is as a consequence regulated by the Financial Services Authority (FSA). Endurance Worldwide CEO Mark Boucher is convinced that the FSA authorisation is the right route to take. "It does count" with clients he said, and also gives Endurance access to Pool Re, the UK government-backed terrorism reinsurer.But some times authorisation is not sufficient. As this issue of Global Reinsurance was going to press, Lloyd's syndicate 102 stopped writing new business, a decision taken in conjunction with the FSA. The syndicate, managed by Goshawk Syndicate Management Ltd, had been pummelled by losses stemming from the failure of 'no win, no fee' compensation firm The Accident Group (TAG), as well as payload claims from the space shuttle loss earlier this year. No doubt there are other gremlins within the claims files, and there are whispers that the TAG-related losses may not prove a problem solely for Goshawk. Even so, despite the demise of its Lloyd's business, Goshawk is remaining bullish about its reinsurance arm, Goshawk Re, based in Bermuda, which will now be receiving the full glare of its attention. So even a failure in the Lloyd's market does not necessarily mean the condition is overly critical.By Sarah GoddardSarah Goddard is the editor of Global Reinsurance.