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Twin jolts of economic volatility and the Sept. 11 attacks have not diminished the capital that life reinsurers say they need to complete deals.
"I dont think there are any capacity issues," according to Scott Willkomm, president of Scottish Annuity & Life Holdings Ltd., George Town, Grand Cayman.
"I think theres adequate capital to do just about any transaction," agrees Richard Leblanc, a vice president of structured reinsurance at Manulife Financial Corp., Toronto. "I dont think theres a big decrease in capacity."
But the executives admit the turmoil has made them choosier about what they see as a good deal.
Financial reinsurance executives are acutely aware of the risks they face, even in good times, and even when the "transfer of risk" looks small to outsiders, because their companies charge just a fraction of a cent for each dollar of reinsurance.
"Were taking a very small piece of the upside, and a very big risk on the downside," Leblanc says.
Definitions vary widely, but Leblanc defines financial reinsurance as the use of reinsurance to solve problems beyond simply shifting traditional underwriting risk.
A financial reinsurance arrangement might transfer risk associated with the timing of claim payments; risks related to the total, final cost of claims that are already payable; investment risk; or other types of risk.
The ceding insurers see financial reinsurance as a tool for accomplishing tasks such as disposing of unwanted blocks of business, converting anticipated streams of income into ready cash and buffering income statements from financial shocks.
The life financial reinsurance market has been growing about 18% per year, Willkomm estimates.
One obstacle is regulators concern that some reinsurance arrangements might simply be carefully disguised loans, or transactions that do little but make income statements and balance sheets look better.
The National Association of Insurance Commissioners, Kansas City, Mo., included strict rules for risk transfer in a 1992 life and health reinsurance model regulation. If a reinsurance arrangement fails to transfer the right amount of risk, or the right kinds of risk, regulators in states that adopted the model might ignore the reinsurance when evaluating an insurers financial strength.
When insurers enter into reinsurance arrangements solely to make the balance sheet look better, "generally speaking, those contracts do not qualify as reinsurance," says Beth Vecchioli, deputy director at the Florida Division of Insurer Services, Tallahassee.
Regulators have been vocal about the "window dressing" issue in Australia and the United Kingdom.