Is there a minimum acceptable amount of capital and surplus for a reinsurer today? If so, what level would it be? Can a reinsurer get too large?

The minimum level of capital depends on how keen the ceding company is to find cover. In practical terms it would probably be hard to gain acceptance with a shareholders' equity below £25 million. In order to be deemed quality security by major broking houses, £100 million would probably be a more likely level of capitalisation. Furthermore, a Standard & Poor's A- rating seems to be an ever more common threshold in order to play in the "major leagues".

A reinsurer can hardly be too large in financial strength terms. There is a point, though, where economies of scale can become diseconomies of scale due to increased bureaucracy and complex hierarchical structures slowing down the decision making process. Customer focus is soon lost to be replaced by a "take it or leave it" attitude.

Are primary companies changing their approach to reinsurance programmes? For example, are you seeing a shift to non-proportional business? Also, to what extent are ceding companies reducing the number of reinsurers on their programmes?

There is a clear shift toward more non-proportional covers as ceding companies strive to retain more premiums and increase retentions. Short term this trend is somewhat offset by the very competitive market in property/casualty reinsurance leading to opportunistic buying of burning covers, often on a proportional basis with generous commission terms.

Reinsurance panels are undoubtedly being shrunk as ceding companies increasingly prefer to deal with professional reinsurers who can add value through technical expertise and a long term perspective.

How are corporate links between banks and insurance companies affecting reinsurance programmes?

Straightforward ownership links between banks and insurers have not (yet) had any major impact on reinsurers. In the case of all out mergers a logical consequence would be increased retentions based on greater financial strength.

Bancassurers are a special case in point creating strong competition for conventional insurers while generally offering interesting prospects to reinsurers due to relatively strong risk aversion and thus more reinsurance, especially in their earlier years.

How do you see the reinsurance market developing in the future? For example, will finite forms of cover become the norm?

"Finite" covers technically refers to capped exposures and it could be argued that such covers already are - or at least should be - the norm today. A majority of unlimited exposures would not make for a quiet night's sleep for reinsurance professionals.

If the expression "finite" reinsurance is used in the context of mixing traditional insurance risk covers with elements of financial or financing support then we are certainly seeing an increased use of these "mixed media" to use an ART expression. It is unlikely that such solutions will become the norm but they will be strategically important to most ceding companies.

Are you currently using - or evaluating - any form of capital markets product to securitise risk for clients or for yourself? Have you invested in securitised products, such as catastrophe bonds or catastrophe equity puts, issued by other reinsurers? If not, under what circumstances would you do so?

Liberty Re has both invested in and helped structure a small number of securitised reinsurance solutions. These are still in their infancy, though, and represent only a small proportion of the market. Most offerings have been structured under US law and have therefore been very cumbersome legally. Capital market reinsurance products still suffer from a very limited resale market. They will not take off in earnest until there is a broader acceptance among non-insurance company institutional investors and ideally also acceptance in the retail investment markets.

What qualities must the successful reinsurance professional possess today? Has this changed in way from previous years?

The key - like in most walks of commercial life - is to provide true customer focus. At Liberty Re we believe that today's reinsurance professionals must be able to provide a wide range of services delivering customer specific integrated risk solutions spanning insurance risk, financial and investment risk as well as operational risks. To deliver these tailor-made solutions reinsurers must use multidisciplinary team work. Ad hoc joint teams will be created with the client for each specific project or opportunity. Such networked teams will at times include third party specialists like consultants or bankers. This approach is clearly very different from selling standardised reinsurance treaties to all and sundry.

Where do you believe the greatest opportunities lie for developing new reinsurance business and why? What, if any, class of business have you entered/re-entered in the last couple of years?

In terms of lines of business, life & health reinsurance offers the greatest growth prospects. Ageing populations, increased medical costs and ever more restricted public finances will lead to great opportunities to provide private insurance solutions complementing shrinking state benefits. At Liberty Re we are actively participating in designing such permanent personal protection plans (PPPP).

John Engeström is chief executive of Liberty Re. Mr Engeström has considerable global experience of (re)insurance from a career spanning more than 20 years. He was group chief executive of Mercantile & General Reinsurance from July 1992 until the end of 1996. In January 1997 he joined the Liberty Mutual organisation of Boston, US, to set up Liberty Re.

Mr Engeström began his career in business in 1966 at Proctor & Gamble in Geneva, Switzerland. During his three years there he oversaw the financial affairs of units in North Africa and the Caribbean, leaving in 1969 to form the Caribbean Trading Company, an import export operation.

In 1976 he joined international insurer and reinsurer Skandia where he was to spend 16 years. His various positions at Skandia included R&D and aviation underwriting. He was a founding director of Skandia Life in the UK and chief operating officer for European reinsurance before joining Skandia America where he conducted a major realignment of the business as chief underwriting officer. He then returned to Europe to ultimately take over as worldwide head of reinsurance at Skandia International.

In 1992, Mr Engeström joined M&G Re. He spearheaded the company's return to profitability, following losses in the early nineties, by introducing a policy of commercial realism to M&G Re's underwriting.

As a result of the impressive turnaround in M&G Re's fortunes, its parent, Prudential Life Assurance, decided to seek a partial flotation of the company on the stock market. Just prior to the flotation, Swiss Re submitted a takeover bid for £1.75 billion, enabling Prudential to sell its entire stake at advantageous terms.

Mr Engeström subsequently left M&G Re in January 1997 to take the helm of Liberty Re, a new reinsurance company based in London and backed by the considerable resources of the Liberty Mutual Group. A pioneer of modern management techniques, he has built Liberty Re's organisation around flexible teams providing multiline solutions to clients on a global basis.

Hans-Jürgen Schinzler, Munich Re.

Is there a minimum acceptable amount of capital and surplus for a reinsurer today? If so, what level would it be? Can a reinsurer get too large?

The risk capital required by a reinsurer depends very largely on its exposure in the fields in which it is active and will therefore differ widely according to the mix of its business. Rating agencies as well as the insurance markets may require even larger amounts: the larger the reinsurer is and the more diversified its portfolio, the less capital it may realistically need to have. So I would be hesitant to state a general level of risk capital needed - this may vary from say 25% of net premiums written to figures far in excess of 100% of premiums written - for example for a monoline catastrophe reinsurer.

Are primary companies changing their approach to reinsurance programmes? For example, are you seeing a shift to non-proportional business? Also, to what extent are ceding companies reducing the number of reinsurers on their programmes?

Generally speaking, primary companies continually alter their approach to reinsurance programmes according to changing underwriting policies, changing attitudes toward retaining a risk or reinsuring it, profit expectancy, etc. Over the last few decades there has without doubt been a certain shift toward non-proportional reinsurance, even if proportional reinsurance as broader and wider protection is still widely maintained. Ceding companies certainly seem to be reducing the number of reinsurers on their programmes - in an understandable flight to security.

How are corporate links between banks and insurance companies affecting reinsurance programmes?

Not really, it would appear. Certainly not where corporate links do not result in integrated operations. In the case of fully integrated bank and insurance companies there may be joint risk management, which could lead to a reduction in the reinsurance bought - unless different product profit-centres are maintained, which again seems more likely than not.

How do you see the reinsurance market developing in the future? For example, will finite forms of cover become the norm?

The reinsurance market is likely to develop further toward more client-specific reinsurance solutions, varying widely according to the different reinsurance buying philosophies. These may be multiline of monoline and include both full risk transfer and risk financing components.

Finite forms of cover are not likely to become the general norm, as typically they clearly limit the transfer of risk in amount or time and therefore are best used for certain risk categories such as low frequency, high severity exposures or to provide risk financing in the retention area in order to smooth fluctuations. Thus, conventional forms of cover with permanent and full risk transfer should not be replaced but complemented by finite forms to create modern risk management concepts which effectively address the individual client requirements in different risk categories and areas.

Are you currently using - or evaluating - any form of capital markets product to securitise risk for clients or for yourself? Have you invested in securitised products, such as catastrophe bonds or catastrophe equity puts, issued by other reinsurers? If not, under what circumstances would you do so?

We are actively participating in the emerging field of risk transfer to capital markets. Munich Re provides structuring services for arranging risk securitisations as well as risk carrying and claims management functions for our clients who choose to enter into or test these alternative risk transfer concepts. We are also quite prepared to provide access to these markets through various links with financial institutions. For the time being, however, these concepts still need to improve with respect to actual risk transfer cost, transactional cost and overall efficiency. This has prevented us from making use of such instruments as an alternative or complement to our own retrocession covers. Mostly for the purpose of constantly developing our expertise in this market segment, we have invested in several securitised products, which provided us with an investor's viewpoint of these transactions. Even though the comparative pricing of such products tends to be quite attractive for investors, we do not plan to shift our emphasis from reinsurance underwriting to reinsurance investing. Overall, we see development potential in this market segment, but the speed of development and realisation of needed improvements will largely depend on capacity and pricing in the traditional market relative to the future loss experience and the future level of return on investments in the traditional asset classes.

What qualities must the successful reinsurance professional possess today? Has this changed in any way from previous years?

The successful reinsurance professional today must possess a diversity of qualities: in insurance technique, in reinsurance technique, in market knowledge, in innovative reinsurance forms, in securitising risk and all this accompanied by financial, actuarial, accounting, and consulting skills. It is up to the reinsurance company to make sure it has all these qualities available for servicing its clients in the way the client requires. This is certainly a change compared with the past, although this change did not come overnight and will very likely only be catered for by major reinsurers.

Where do you believe the greatest opportunities lie for developing new reinsurance business and why? What, if any, class of business have you entered/re-entered in the last couple of years?

Seen geographically, markets which are deregulating, liberalising, upcoming, emerging or are newly developing industrial countries, present - and this is not new - the greatest opportunities for developing really new reinsurance business. Entirely new classes of business do not appear regularly, though satellite insurance and finite reinsurance certainly were new. In our service economies the casualty classes are likely to grow more than others. So will life, pensions, health and employee benefits insurances, considering the problems the social security systems have worldwide and the chances this presents for the private insurance industry to supplement or even replace public social insurers.

Hans-Jürgen Schinzler is chairman of the board of management of the Munich Reinsurance Company.

Mr Schinzler joined the company in 1969 where his main areas of responsibility were shareholdings and real estate. In 1981 he was appointed a member of the board of management with finance, investments and credit reinsurance his main areas of responsibility. He was appointed to his current position in 1993.

Ronald L. Bornhuetter, NAC Re Corporation.

Is there a minimum acceptable amount of capital and surplus for a reinsurer today? If so, what level would it be? Can a reinsurer get too large?

The "flight to quality" which has been underway for the last several years has clearly separated the wheat from the chaff. On the whole, the first tier reinsurers are very solid financially, with strong balance sheets and very impressive ratios. In fact, many would argue that current total levels of capital (currently 0.7:1 premium to surplus for US-based companies) are higher than necessary and the erosion in pricing caused by this abundance of capital has been a major problem for the less well-positioned companies.

Can a reinsurer get too large? From a financial perspective, I don't think so. However, the larger a reinsurer gets the harder it is to remain close to customers and the more difficult it is to remain flexible, provide personal customer support, and achieve growth objectives while maintaining financial and underwriting standards.

In any event, the reduction in the number of reinsurers does force clients to look more closely at reinsurers' balance sheets and surplus size is always a significant factor.

Are primary companies changing their approach to reinsurance programmes? For example, are you seeing a shift to non-proportional business? Also, to what extent are ceding companies reducing the number of reinsurers on their programmes?

While there are certain trends, I would have to say that each company seems to be reacting to changes in the market according to its own views and approach to business. For example, we have seen retention levels increase in many of our larger clients, particularly those who have recently merged. They are diversifying their risk by adding new and different businesses rather than through traditional reinsurance. On the other hand, we have also seen customers take advantage of the soft pricing in today's market and actually increase the amount of business they are ceding, radically reducing retentions.

We are seeing some reduction in the number of reinsurers on ceding companies' programmes. I think this is due primarily to the flight to quality that I mentioned earlier as well as the fact that reinsurance coverage from even top tier reinsurers is attractively priced from the cedant's perspective.

How are corporate links between banks and insurance companies affecting reinsurance programmes?

We have not yet seen much direct impact of this growing trend. Clearly linkages between banks and insurance companies are becoming more numerous and stronger. The most interesting change over the last few years is the increasing financial sophistication of the people we deal with at client companies, in part due to affiliation with banks and other financial services institutions. Today we deal with folks who are as comfortable discussing a capital market approach to covering a risk as they are with a more traditional reinsurance approach. I have to think that this trend - and the eventual blurring of traditional reinsurance with other products that it implies - will be increasing in importance.

How do you see the reinsurance market developing in the future? For example, will finite forms of cover become the norm?

While it is always easier to talk about "the market," we have to keep in mind that the needs of companies that purchase reinsurance vary tremendously based on size, exposure, financial situation and management attitude. The market for traditional reinsurance will not dry up, but I expect that we will continue to see an evolution of products over the next several years. These products will not be only from traditional reinsurance sources, but will include capital markets solutions from the investment banking community and commodity-like coverage that can be traded on secondary markets.

The good news for clients is that they will be able to choose from among a number of alternative products, such as finite risk, to fit their needs. (One note of caution: the location of the "underwriting risk" in finite transactions is sometimes blurred.)

It also makes for exciting times for reinsurers, as change keeps things interesting.

Are you currently using - or evaluating - any form of capital markets product to securitise risk for clients or for yourself? Have you invested in securitised products, such as catastrophe bonds or catastrophe equity puts, issued by other reinsurers? If not, under what circumstances would you do so?

These new products offer exciting opportunities but are clearly in the developmental stage. While we have not yet offered any form of capital market products to our customers, we recognise the potential - and the limitations - of this type of product. Currently we are offering several innovative products that provide us with a competitive advantage. As for the future, I won't comment on our specific plans at this point other than to say that we don't intend to be left behind as new market opportunities present themselves.

What qualities must the successful reinsurance professional possess today? Has this changed in any way from previous years?

The two critical competencies are underwriting and customer service. This has not changed and I cannot imagine that it will in my lifetime.

You cannot make money in this business if you don't understand the risk you are taking on or if you lack the courage to adequately price your book. Secondly, we are in the business of meeting our customers' needs. If we don't know what those needs are or if we don't pay attention to our customer, we won't succeed for long, either.

Where do you believe the greatest opportunities lie for developing new reinsurance business and why? What, if any, class of business have you entered/re-entered in the last couple of years?

I cannot give you a blueprint for the next few years, partly because things are changing so fast that I am not sure anyone can accurately predict what the big successes will be, and, to be honest, partly because I want to keep a few cards close to our vest.

Having said that, it is clear that the capital markets solutions discussed above are the most major changes that we have seen in recent years, with an even greater potential for change than products such as finite risk brought. I see the future as an interesting combination of the "commodity," represented by cat bonds and industry loss warranties, and "customised products," those special deals you put together to meet the very special needs of a client.

We have done both of these in recent years and will continue to do so, but I would have to say that NAC Re, with our strong focus on what we call "customer intimacy," will always have a fondness for the customised work and will be entering new areas in response to the very specific, technical needs of our clients.

Ronald L. Bornhuetter is chairman of the board and ceo of NAC Re Corporation and chairman of its subsidiaries, NAC Reinsurance Corporation, Greenwich Insurance Company and Indian Harbor Insurance Company, located in Greenwich, Connecticut, and NAC Reinsurance International Limited, located in London.

Mr Bornhuetter joined NAC Re in 1985 as president and ceo. At the time, NAC was a relatively dormant reinsurer with minimal surplus and staff, and has since emerged as one of the largest reinsurers in the United States, with premium volume in excess of $600 million and statutory surplus in excess of $700 million.

Prior to joining the company, Mr Bornhuetter was affiliated with the General Re Group from 1965 to 1985. He was vice president-finance of General Re Corporation, and senior vice president and comptroller of its subsidiary, General Reinsurance Corporation, having served as cfo of the group.

Mr Bornhuetter graduated from the College of Wooster, Wooster, Ohio in 1953 with a BA in Mathematics, and received his MBA in 1958 from Columbia University. In 1976, he completed the advanced management programme at Harvard University.

Bruce M. Barone,

Overseas Partners Ltd.

Is there a minimum acceptable amount of capital and surplus for a reinsurer today? If so, what level would it be? Can a reinsurer get too large?

A. Probably - $1 billion to be considered top tier.

B. No - unless cedants perceive threat of competition.

Are primary companies changing their approach to reinsurance programmes? For example, are you seeing a shift to non-proportional business? Also, to what extent are ceding companies reducing the number of reinsurers on their programmes?

A. "Market" opinion is that XL is now in favour given where we are in the cycle. However, partnership "pressure" from reinsurers may persuade Q/S participation.

B. Yes - subscription days are over. Ceding companies are replacing quantity with quality.

How are corporate links between banks and insurance companies affecting reinsurance programmes?

Although first blush might indicate strong partnerships, banks and insurance companies are almost at opposite ends of the risk spectrum. It will be interesting to see if risk appetites change as a result of these links.

How do you see the reinsurance market developing in the future? For example, will finite forms of cover become the norm?

Not the norm, as they have limited risk transfer. There will be more non-traditional products offering solutions (eg, old product enhanced).

In addition, we see major corporations seeking expansion of products covering a greater degree of the commercial risks they face, not just the conventional.

Are you currently using - or evaluating - any form of capital markets product to securitise risk for clients or for yourself? Have you invested in securitised products, such as catastrophe bonds or catastrophe equity puts, issued by other reinsurers? If not, under what circumstances would you do so?

A. No.

B. No.

C. Either as an arbitrage possibility or as a proxy for traditional cat cover.

What qualities must the successful reinsurance professional possess today? Has this changed in any way from previous years?

Flexibility and, in addition to the traditional industry, knowledge of a full range of financial markets and products. Traditional backgrounds only make up a part of the well-rounded professional today.

Where do you believe the greatest opportunities lie for developing new reinsurance business and why? What, if any, class of business have you entered/re-entered in the last couple of years?

Offering enhanced products, which make them more generally acceptable. Expanding the market by increasing market demand. Acquisitions, new product development and capital markets.

Bruce M. Barone is ceo and president of Overseas Partners Ltd ( Overseas). Overseas is one of the world's largest reinsurance companies with capital (capital stock and surplus) at 1997 in excess of $2.3 billion. The company provides property, casualty, marine, aviaton, health, financial & specialty reinsurance coverages to other insurance and reinsurance firms.

Mr Barone has been directly involved with Overseas since its inception in 1984. Prior to being named ceo, he served in a number of positions including chief accounting officer, treasurer and chief operating officer.

Until the Overseas responsibilities became full time in 1994, Mr Barone was vice president-finance at United Parcel Service, one of the world's largest transportation companies. Prior to that, he worked with Touche Ross & Co, now Deloitte & Touche, in New York City, New York; London, England and Stamford, Connecticut.

Mr Barone has a BA degree from Queens College, City University of New York and an MBA from the Graduate School of Business at Columbia University. He is a certified public accountant in New York and Connecticut.

Mark D. Mosca, Risk Capital Reinsurance Company.

Is there a minimum acceptable amount of capital and surplus for a reinsurer today? If so, what level would it be? Can a reinsurer get too large?

There is less talk of higher surplus requirements by reinsurers today and more attention to a rate of return on that surplus. Surely surplus as a measure of financial strength is critical to clients, but after upward movement in the early 1990s, we now see insurers raising expectations for product and service rather than minimum surplus.

Are primary companies changing their approach to reinsurance programmes? For example, are you seeing a shift to non-proportional business? Also, to what extent are ceding companies reducing the number of reinsurers on their programmes?

More companies are taking a corporate look at their programmes, sometimes buying aggregate excess covers to replace or support monoline and other traditional reinsurance. This corporate trend mirrors what policyholders are doing through multiline insurance policies. Any movement to excess or pro rata is dictated by what the insurer is looking for, and we see no single trend. The flight to quality has become a given so that the shrinkage or replacements in approved reinsurer lists go on without fanfare after a consolidation or major reserve adjustment. Most insurers already know the quality reinsurers and now differentiate their partners by what they do for the insurer's bottom line.

How do you see the reinsurance market developing in the future? For example, will finite forms of cover become the norm?

The overwhelming change in the market is that reinsurance has become a means to finance risk, generating a whole spectrum of new products and financial support beyond the traditional coverages we all know. An insurer concerned about surplus after a major hurricane has an array of options available and often more effective than traditional cat covers. Risk securitisation, standby capital and integrated equity and reinsurance solutions are just a few examples of alternative ways to protect insurers from risk. Insurance and financial products will continue to converge while we and other reinsurers develop new products as quickly as our clients need them. The point is that buyers and reinsurers are redefining the product and at the same time, the entire business. Reinsurers will go on consolidating and becoming more global, which they must do to succeed, but the most important change to grasp is that they must satisfy a whole new and unique set of client expectations to maintain that success.

What qualities must the successful reinsurance professional possess today? Has this changed in any way from previous years?

If the reinsurance product has been redefined, then so must be the skills of the reinsurer. The successful reinsurer must have two qualities that operate in tandem: strong analytical skills and the ability to orchestrate them. Financial, actuarial, underwriting and legal skills are critical to understanding the risk needs of buyers and structuring the best solutions. When a client approaches us with a need, such as surplus should a catastrophe hit or funds to buy out a retiring owner, we draw upon all professional disciplines to come up with alternatives and the best answer for that particular client. The second skill is to harness and direct all that talent to make the deal happen. Many reinsurers employ experts across these disciplines but cannot focus the resources on individual client needs. The reinsurer with skills and focus is the one with the most satisfied clients.

Where do you believe the greatest opportunities lie for developing new reinsurance business and why? What, if any, class of business have you entered/re-entered in the last couple of years?

The greatest opportunities for new reinsurance business come from outside the boundaries of traditional reinsurance, which are fast disappearing to make way for integrated financial and reinsurance products. If insurers want more risk financing tools than reinsurance alone can provide, then reinsurers adept at creating new products will find opportunities, and those sticking to monoline reinsurance will not.

Risk Capital Re has found opportunities for growth from integrated financial and reinsurance products, and from more specialised niche markets where strong product knowledge can generate profitable business. Risk Capital Re was formed to provide both capital and equity solutions for insurance companies, and we believe that our strategy answers evolving risk financing needs. Insurers can use capital to further business strategies - usually growth, buyouts or startups, reserve strengthening - while reinsurance is more limited. We have provided over $150 million in private financing since our first deal in 1995, and four deals so far this year with several more on the burner. Often reinsurance is a critical component, but both equity and reinsurance were structured to achieve the desired result.

We also view our investment portfolio as a strategic weapon for domestic and international growth, which sets us apart from other reinsurers. By investing in companies worldwide, such as Latin American Re and more recently Stockton Re, Risk Capital Re is effectively competing in the international reinsurance business. We may increase our reinsurance presence, but equity transactions have given us a good foothold.

It is more challenging to find profitable growth in traditional reinsurance sectors, but the specialty market segments - like high excess marine and satellites - offer some opportunities for the experienced reinsurer to grow with its clients. Risk Capital Re has entered the specialty markets over the past two years by targeting the marine, aviation and surety lines and then retaining expertise in those fields. We have increased our activity in the property, casualty and professional liability fields, but there are few profitable opportunities in this soft market and Risk Capital Re has drawn from underwriting and actuarial talent to find them.

Mark D. Mosca is president, director and ceo of Risk Capital Reinsurance Company, a wholly owned operating subsidiary of Risk Capital Holdings, Inc., of which he is also president, director and ceo.

Mr Mosca joined Risk Capital Re as president in 1995, when the company was formed to provide reinsurance and other forms of capital to the insurance industry. He has over 20 years of experience in this business, beginning as an underwriter with General Re in 1975. In subsequent positions, Mr Mosca served as vice president and manager of treaty underwriting at NAC Re, and later senior vice president and chief underwriting officer at Zurich Reinsurance Centre Holdings. He holds an A.B. degree from Harvard University.

Jacques Blondeau, SCOR.

Is there a minimum acceptable amount of capital and surplus for a reinsurer today? Is so, what level would it be? Can a reinsurer get too large?

The minimum level of capital depends on the kind of reinsurance. For monoline, the company could, perhaps, operate with $200 million. If a reinsurer is writing only short-tail business, the customers will not be so worried about long term survival. For long-tail, you need much more capital, perhaps $1-$1.5 billion. More and more customers are really focused on the reinsurers' strength by which I mean not just capital but whether they are properly reserved and will be there in 15 or 20 years.

I am not sure whether there is a point where a reinsurer could be too large. The reinsurer needs to have enough resources to make the necessary investment in research, IT, modelling and so on. It's not impossible for a small company but it is fairly expensive. Of course, after a buying spree, there are some difficulties in building up cohesion, but that's quite normal.

Are the very largest today too big? I don't think you can say that, although a smaller company may have an edge in flexibility. It is more a question of efficiency and market share. Cedants want to keep a mix of reinsurers on their programme and do not want any reinsurer to have more than 15%-20% maximum, so there is a ceiling against which we are hitting our heads. Therefore, it is possible that beyond a certain size, there could be diseconomies of scale.

Are primary companies changing their approach to reinsurance programmes. For example, are you seeing a shift to non-proportional business. Also, to what extent are ceding companies reducing the number of reinsurers on their programmes?

There is a very good correlation between the size of cedants and the amount of proportional and non-proportional business. With very large groups, there is more and more non-proportional, which makes sense as they do not need the pure financial help but just want to transfer the peak risks. We do not have any preference for proportional or non-proportional. We make as much money in either.

The big European groups have totally re-visited their reinsurance buying habits. Today they are working with a short panel of reinsurers, probably 12-15 but a maximum of 20, which is very different from the large lists of the past. The idea was that it spread the risk, but the cost of managing those huge panels was incredible and having all the smaller players was not spreading the risk at all because of the security problem. This has been a very marked trend from which the industry will benefit.

Where there has been consolidation among ceding companies, there is going to be a certain amount of tension between centralisation of reinsurance purchase and keeping it dispersed. At this stage, we are going to see centralisation of at least part, but some buying through profit centres will continue, and the people in charge of them will not want to lose all control of reinsurance. Therefore, I do not expect there will be a single result; there will be a variety of situations. Centralisation is still the name of the game but the profit centres are fighting back.

How are corporate links between banks and insurance companies affecting reinsurance programmes?

If you are talking about bancassurance, banks are probably more risk averse than normal insurance companies. Selling life insurance, for example, they are looking for an increase in funds under management. In general, they want to optimise their distribution network and protect their client base. They are not too interested in keeping risk for themselves so for reinsurers, banks can represent more interesting potential for development than more established insurance companies, but this is only marginal for the long term.

How do you see the reinsurance market developing in the future? For example, will finite forms of cover become the norm?

We make a clear distinction between emerging markets and mature markets. Over the next 20 years, emerging markets will buy traditional products, because that is what they need. For mature markets, we are going to see new forms emerging. Multiyear is clearly very popular now when rates are low! Also, with the year 2000 problem, it is attractive to get cover until 2002. When the cycle moves back, we will see one year contracts once more in favour. However, multiyear is nothing new.

What I do classify as new business is what is called ART, financial products, cat bonds, direct access to the financial market. We do not see ART working for trading risks and large industrial groups. Most of the trading risks are effectively covered by financial markets already and since the (re)insurer cannot keep risks like currency and interest rates, it would not be adding anything but additional costs.

Cat bonds are very different. Under current market conditions, they do not make sense but they will after the next Hurricane Andrew when we will all experience a lack of capacity. For normal reinsurers to build up huge funds waiting for "the big one" does not make much sense from an economical and financial standpoint, and I think the financial markets will take over this activity.

What qualities must the successful reinsurance professional possess today? Has this changed in any way from previous years?

Some 20 or 30 years ago, you had to understand markets. What was important then was the rate but today it is the best solution. We have to understand clients and they are so diverse that we have to adjust for each one. We have to put ourselves in the shoes of their ceo. It is a question of what we can offer. All of us have to carry a bigger tool box. Reinsurance will remain a very interesting mix of a rational, mathematical approach combined with marketing and intuition. We will need people with many qualities. They will need an extremely good level of education with a wide range of understanding and skills.

Where do you believe the greatest opportunities lie for developing new reinsurance business and why? What, if any class of business have you entered/re- entered in the last couple of years?

Emerging markets such as Asia and South America are clearly all markets which will become very large in due course. Five years ago central Europe was not very big but it is increasingly important.

In terms of products in mature markets, broadly speaking, I think growth will be in casualty. People are generally over insured and reinsured in property, because they tend to exaggerate the amount of risk they are taking, and grossly under-insured in casualty. Take for example, the year 2000, where people have discovered the big problem will be on casualty, such as D&O, not property.

We are also going to see an increase in demand for life and other protection products with an ageing population, an increased perception of risk and limits on the ability of social systems to provide.

The merger of AXA and UAP has not changed the picture that much, because over the last 20 years in France large traditional insurance companies have lost to direct selling mutuals who now control about 60% of the market. We still have active, healthy, medium sized companies, which are very well managed.

Jacques Blondeau is chairman and ceo of SCOR. A graduate of the Ecole des Hautes Etudes Commerciales (HEC), Mr Blondeau began his career in several key positions in industrial groups in Europe.

He joined the Pechiney Group in 1975 and became vice president of its American subsidiary, then managing director of its Australian operations and then chairman of Howmet Resources Corporation (US).

He joined the general management of SCOR in 1988 as a director of SCOR SA, president and chief operating officer of the SCOR Group and president and ceo of SCOR US.

He became chairman and ceo of SCOR Group on September 1, 1994.

James F. Duffy, St. Paul Re.

Is there a minimum acceptable amount of capital and surplus for a reinsurer today? If so, what level would it be? Can a reinsurer get too large?

Financial security is a basic requirement of reinsurance buyers. While clients usually demand at least $250 million of surplus (or the equivalent in a parental guarantee) from their reinsurers, a requirement of $500 million capital and surplus is becoming more common, and the trend is pointing to even higher levels. As consolidation within the marketplace continues, we are moving rapidly to a time when only the financially strong will remain in the global reinsurance marketplace.

From the client's point of view, surplus cannot be "too large". However, besides size, clients also are concerned about the quality of the reinsurer's security and the ability to provide solutions that effectively meet the client's needs. Increasingly, that means having the flexibility to put together tailored, customised programmes, or the ability to deliver alternative risk transfer programmes - all within a timeframe that meets or exceeds client expectations.

Are primary companies changing their approach to reinsurance programmes? For example, are you seeing a shift to non-proportional business? Also, to what extent are ceding companies reducing the number of reinsurers on their programmes?

St. Paul Re has undertaken a comprehensive study to date of the reinsurance marketplace. We estimate the world reinsurance market totals about $100 billion, with current demand for excess of loss totalling 25% of the world market.

Propertional reinsurance continues to dominate that market, and comprises most of the business of some of the world's giant reinsurers. The global industry trend, however, is just the opposite: more and more of the world's reinsurance is moving toward excess of loss, as markets mature and become less regulated. We estimate that the market in 2010 will be split with 60% proportional reinsurance and 40% excess of loss, versus today's 75-25 split.

To excel in excess of loss requires strong technical capabilities and discipline. The margins for error are much smaller than for proportional. More upside, more downside: more volatility to contend with. That's particularly true in today's competitive market. It requires that a reinsurer continue to exert sound technical underwriting and actuarial expertise to remain a consistent market for its clients.

As insurers retain more risk, they are purchasing less reinsurance. And insurers are reducing the number of reinsurers on their programmes, opting to place their business with smaller panels of financially secure reinsurers.

How are corporate links between banks and insurance companies affecting reinsurance programmes?

Such links, rather than having immediate impacts, instead are reflective of a longer-term trend: the "blurring" of the distinction between insurance, reinsurance and banking. In the financial services industry, there is an abundance of excess capital. As a result, where shortages do occur, institutions that are flexible and responsive can deploy capital quickly, correcting such shortages.

The result is that institutions with a combination of capital strength, technical innovation and flexibility can act to meet the changing needs of customers. Customers don't care what an organisation labels itself. Instead, they want the institution to meet their needs and provide effective solutions.

One example of this trend is the "packaging" of traditional risk transfer with balance sheet protection. This has been spurred by client demands for innovation and product development to satisfy their changing risk management needs.

As a reinsurer, we still can prosper in such an environment. We bring underwriting and actuarial skills that are essential to a variety of risk transfer activities. At the same time, we must maintain our capital strength and deliver a return to shareholders.

How do you see the reinsurance market developing in the future? For example, will finite forms of cover become the norm?

It is important for reinsurers to approach the future not in terms of what product or coverage is likely to be the "norm," but to develop the capabilities to respond to increasing and changing client demands. In today's market, we see firsthand how sophisticated customers of reinsurance are seeking more innovative ways to manage risk. Clients increasingly are viewing the concept of risk as including both traditionally insurable risk, and financial risk.

Customised approaches that provide favourable alternatives to traditional reinsurance, for example, have become well-entrenched on the industry landscape. Several economic factors have contributed to the increased demand for customised reinsurance programmes. For example, the globalisation of companies has increased their exposure to currency fluctuations. These additional financial risks have led firms to look at how they can take an integrated approach to managing the varied risks to their balance sheet.

Technological improvements in financial management applications have, simultaneously, given companies the means to analyse those risks comprehensively. The ability to monitor financial positions and risks on a daily basis, for example, has greatly expanded the role of corporate risk managers.

Many reinsurers have formed units to market and underwrite customised programmes. Finite and other customised structures can be applied to all lines of business, whether excess of loss or proportional, treaty or facultative. They are just that: structures, and purchasing them is similar to purchasing traditional business. The primary difference is that they are tailored to meet the needs of the customer.

In the future, successful reinsurers will provide the expertise to analyse different types of risks - traditional insurance risks as well as other financial risks and exposures - while providing the capital, or access to capital, needed to underwrite that risk.

Are you currently using - or evaluating - any form of capital market product to securitise risk for clients or for yourself? Have you invested in securitised products, such as catastrophe bonds or catastrophe equity puts, issued by other reinsurers? If not, under what circumstances would you do so?

St. Paul Re was the first US reinsurer to successfully securitise reinsurance, with George Town Re in 1996. This $68.5 million transaction provided us with retrocessional capacity for short-tail excess of loss reinsurance business for up to 10 years in duration. In effect, it increased our capacity by about $50 million.

Our strategy behind George Town Re was to obtain reasonably priced capacity and to learn about the complexities of dealing with the capital markets. Certainly, it was costly to complete this deal when we did, especially when securitisations were still in a developmental stage.

We have a long-term strategy of becoming more of a market leader for our clients - leading on treaties, and being a problem-solver. In that regard, George Town Re in the short-term helped us to build bigger lines and deepen client relationships.

That experience also helped build our knowledge and expertise for accomplishing additional securitisations. Recently, for example, F&G Re, another reinsurance operation which became part of The St. Paul Group earlier this year, completed a reinsurance securitisation called Mosaic Re. This transaction provides F&G Re with $45 million of additional reinsurance capacity.

Over the next few years, we expect reinsurers to be involved with the capital markets, to solve client needs. As reinsurers tap the capital markets, our specialised role will not only continue: it will become even more important to those who place their capital at risk in such investment vehicles.

What qualities must the successful reinsurance professional possess today? Has this changed in any way from previous years?

One such quality, required for many years, still remains constant: the successful reinsurance professional must exhibit knowledge and sound discipline in evaluating and underwriting insurance risk. While securitisations, finite risk reinsurance, alternative risk transfer and other innovations attract much attention, the underwriting skills needed to evaluate risk remain basic to our profession.

Still, as reflected in answers to earlier questions, reinsurance professionals are being called upon to have an understanding of the financial markets, as reinsurers tap those markets and utilise new financial tools to deliver risk solutions to clients. Moreover, professionals must have a broader understanding of "risk" than in earlier years, which must include not just traditional underwriting risk but financial risk, corporate risk, environmental risks and all other possible risks to a corporate enterprise.

Perhaps the one common denominator is the need to be client focused, as all of these skills and disciplines have been developed so that we can respond effectively to client needs. That, for example, is why St. Paul Re organised staff into teams of underwriters and actuaries working together, to deliver tailored solutions for each client rather than just delivering off-the-shelf products.

Where do you believe the greatest opportunities lie for developing new reinsurance business, and why? What, if any, class of business have you entered/re-entered in the last couple of years?

St. Paul Re has not entered or re-entered specific classes of business in recent years. Instead, we continue to underwrite a portfolio of property, casualty, ocean marine, surety and speciality lines reinsurance for non-life insurance companies worldwide. We write treaty and facultative reinsurance; offer reinsurance both on a "traditional" basis and on a "finite risk" basis; and provide products and services to the growing alternative risk transfer market.

St. Paul Re's comprehensive strategic planning research and report, noted earlier, identified long-term growth opportunities in several areas of the world. Looking to the year 2010, we anticipate that growth will slow in North America and western Europe, but those two regions will still represent the majority of the world market - perhaps 50% to 60%. We will therefore continue to pursue growth and profit opportunities on both continents.

Based on our research, we expect that Latin America will enjoy high growth rates as economies develop and Brazil's IRB loses its state monopoly. We project an 8% growth rate for Latin America through the year 2010. Likewise, over the same period eastern Europe will enjoy rapid growth - at annual rates between 16% and 20% - as it develops along a Western model.

Depending on deregulation and access to assumed business, Japan is a market with a high growth potential in reinsurance, particularly for catastrophe coverage. In Asia overall, intra-regional co-operation and the rise of China is expected to lead to very rapid growth in the coming years. Even Australia and New Zealand, both relatively mature markets, still offer the potential for an estimated annual growth rate of 8% over the next 15 years.

James F. Duffy is president of St. Paul Re, the reinsurance underwriting operation of The St. Paul Companies. Based in New York, with offices in London, Singapore, Miami, Brussels, Tokyo, Hong Kong, Munich, Chicago, Atlanta, Philadelphia and Sydney, St. Paul Re is among the 15 largest reinsurance companies in the world.

Mr Duffy's 30 years' experience in the property/casualty insurance business includes executive positions in reinsurance, surplus lines and international underwriting.

Mr Duffy joined The St. Paul in 1980 as president of St. Paul Surplus Lines Insurance Company. He became senior vice president of St. Paul Fire & Marine Insurance Company in 1984 and executive vice president in 1988. He became president of St. Paul Re in 1993.

Prior to joining The St. Paul, Mr Duffy was an executive vice president of Cameron & Colby & Co, a surplus lines and reinsurance firm. He began his insurance career as an underwriter for Commercial Union.

A native of Boston, Mass., he received his Bachelor's degree in marketing from Boston College in 1965.

Henry Atzenweiler, Winterthur Re.

Is there a minimum acceptable amount of capital and surplus for a reinsurer today? If so, what level would it be? Can a reinsurer get too large?

In the US, $250 million seems to be the generally requested minimum. As far as the rest of the world is concerned, I am not aware of a minimum amount. Whether such a figure makes sense at all is questionable. I can easily imagine a company with a surplus of $300 million which in fact offers worse security than a company with a surplus of $150 million. You have to look at the capital in relation to the quality of the reinsurance portfolio accepted as well as quality, performance and match of investments.

Are primary companies changing their approach to reinsurance programmes? For example, are you seeing a shift to non-proportional business? Also, to what extent are ceding companies reducing the number of reinsurers on their programmes?

There clearly is a shift from proportional to non-proportional business especially in the developed markets. Let's, for example, look at the UK where big motor and homeowners quota shares were ceded in the period 1992 to 1994. They were the consequence of cedants' drastically reduced surpluses following a period of serious losses. In the UK there is no need for these cessions today. The same is true in many other developed markets. There is still a need for proportional reinsurance in many of the emerging markets due to the small capital base of the cedants.

The trend toward a limited number of core reinsurers is clear and obvious. With the present premium appetite of reinsurers it is easy to place most programmes with a small number of reinsurers. The reduction of the administrative burden and the costs involved is beneficial to the ceding companies as well as to the reinsurers. It is a development which makes a lot of economic sense.

How are corporate links between banks and insurance companies affecting reinsurance programmes?

Having recently merged with Credit Suisse, we are at the moment analysing all the relevant aspects. I will be in a position to give you some first hand input for the Monte Carlo preview 1999.

How do you see the reinsurance market developing in the future? For example, will finite forms of cover become the norm?

In the medium to long-term, only reinsurers who maintain underwriting discipline and underwriting excellence will survive. Concentration among reinsurers will continue but at reduced speed. This will open opportunities for focused and specialised reinsurance companies of good security.

I assume that by "finite forms of cover" you mean ART.

While it is not easy to sell ART covers during the present soft market conditions, these covers will definitely become much more popular in the future, that is as soon as the market hardens again. So far, only very long-term oriented reinsurance buyers have been purchasing this type of cover. Many more have indicated that they intend to do so once the market changes.

Are you currently using - or evaluating - any form of capital markets product to securitise risk for clients or for yourself? Have you invested in securitised products, such as catastrophe bonds or catastrophe equity puts, issued by other reinsurers? If not, under what circumstances would you do so?

In 1997, Winterthur Insurance launched a three year subordinated convertible WinCAT bond. The annual coupon will only be paid out if, during a particular year, major (hail) storms do not damage more than 6000 motor vehicles insured with Winterthur in any single event.

As a reinsurer, we are also actively involved in securitised products and have invested in several of the cat bonds, insurance linked swaps and options, which have been on the market recently.

It is our philosophy to offer the full product range of traditional as well as non-traditional reinsurance in order to fully service our clients and also to optimise our return on equity.

What qualities must the successful reinsurance professional possess today? Has this changed in any way from previous years?

Once upon a time there was "the successful reinsurance professional" who every so often embarked on a big ship, sailed to other continents where, on his own he analysed and wrote the reinsurance business.

Clearly, this reinsurance professional disappeared some time ago.

The trend toward multiline deals, ART solutions covering insurance as well as financial risks, requires a team approach. Therefore, today, I would speak about the successful reinsurance organisation rather than the successful reinsurance professional. Such an organisation employs a wide range of specialists. Depending on the needs of the client, a team is formed and will work out solutions which create real value for the client by improving his return on equity too.

Where do you believe the greatest opportunities lie for developing new reinsurance business and why? What, if any, class of business have you entered/re-entered in the last couple of years?

For a medium sized, focused and flexible reinsurer, as for example Winterthur Re, there are a lot of opportunities even in this rather difficult market. It is more of a challenge to find them than during the very hard market of four or five years ago. We have to work harder and we have to be more creative. We have to listen to the clients much more carefully and offer them solutions to their problems rather than to continue to sell them our standard off the shelf products as, perhaps, some of us have been doing for much too long.

Henry Atzenweiler is head of marketing, non-life, at Winterthur Re in Winterthur.