It seems only yesterday that re/insurance pundits were speculating that the industry cycle had been broken and never again would stricter terms and higher premiums be experienced by buyers.

A brave new world of sound – and ever-increasingly more sophisticated – risk management practices, coupled with a golden age of continual economic growth would put an end to the peaks and troughs of the business, they argued. Even when the faint image of cashflow writing appeared on the wall, still the prediction was of halcyon days ahead.

Now the proverbial worm has turned. A combination of high ratios, poorly performing investment markets and increased claims has forced the market's hand. Although capacity remains high, returns are proving more attractive than income, and re/insurers are acting accordingly. Some would say not a moment too soon.

In this issue of Global Reinsurance we focus on North America, and examine some of the major issues impacting the re/insurance industry. Some, such as asbestos and workers' compensation, are frighteningly familiar. Others, such as the control of workplace violence, are newer exposures which must be confronted. In these days of corporate governance and board level responsibility for risk management, it is a brave – if not foolhardy – organisation which puts off until tomorrow the risk management measures can implement today.

The need to be completely thorough in covering every risk management angle is reinforced by the latest developments in asbestos-related litigation. Writing in this issue, Omar Jama of rating agency Fitch IBCA identifies increasing concerns over companies with asbestos liabilities, in the wake of recent chapter 11 filings by Owens-Corning and Armstrong. Shifts in trends impacting the re/insurance response to asbestos-related claims have made it difficult to predict the ultimate impact they will have, while US lawyers currently are looking to third parties, and their re/insurers, as another possible source of compensation.

Although this may seem like a case for the lawyers, risk managers have a profound role to play in minimising the impact of class and other mass tort actions, argues Robert Jacobs. As the number of class actions filed continues to increase, along with level of damages awards, risk managers will have an increasingly central role in evaluating the impact of terms and conditions on the future cost of claims, as well as estimating the administration costs of settling these claims, he suggests.

At the same time, more traditional risk management skills continue to be core. As conditions have hardened in the conventional re/insurance market, eyes have again turned towards captive insurance companies as a method of reducing the cost of risk transfer. Although the debate still continues whether captives are traditional – an argument supported by their existence for most of the last century – or alternative risk transfer mechanisms (a debate Global Reinsurance is content to stay away from for the time being), there is little doubt that their popularity continues and they can lend significant advantages to their parent organisation. Conversely, the presence of a captive in the corporate structure can lay the organisation more open to losses, as well as being exposed to increased regulatory requirements.

Nevertheless, captive formation continues apace, and more jurisdictions have set up to provide the facilities. Other established domiciles are actively extending their product offerings, most notably with protected cell legislation (also known as segregated accounts legislation) to open up the market to small and medium sized enterprises. As Mark Harris notes, it is not just the Fortune 500 companies which are finding captives a useful tool in the risk management armoury.

As affordable re/insurance cover becomes difficult to source, so more and more organisations are turning to the captive market, with an estimated 30% of the potential US property/casualty marketplace already dabbling in the ART world, whether through captives, pools or risk retention groups. It is unlikely that many of these will return to the conventional market in the foreseeable future.

Further into the ART sector, where re/insurance meets the capital markets, questions are being raised over the aggregations of risk. Lawrence Pistell argues that the concentrations looming on the horizon will lend increased power to the entities bearing the risk burden. As re/insurers and banks consolidate to create mega-financial institutions, the force this new breed of organisation may bring to bear not only on their own industries but also on the economy in general is something to be watched closely, he argues.

Maybe the brave new world is already here.