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The way reinsurers do business is in need of reform. I mean, really, do hush-hush reinsurance discussions held behind locked-door meetings in hotels with grandiose names located in postage-stamp nations brimming with tax weasels and choking on the wealth inherited by scions of decayed aristocracies really help risk managers by the likes of Honeywell's Assistant Treasurer Lois Fuchs toiling away back at headquarters in northern New Jersey?

"Yes, indeed," howl the reinsurers. "Primary carriers couldn't live without us and the valuable service we provide."

In addition, reinsurers skillfully avoided the subprime lending debacle that has afflicted the banking sector and has cost some leading primary carriers billions of dollars, a sign that they are on the whole well managed, at least for the moment.

Right now, the balance sheets of reinsurers paint a rosy picture as the industry posts strong financials. But so what? Companies that do well in the marketplace today are not necessarily those positioned to survive over the long term.

The past 20 years is littered with the names of reinsurance companies that have come and gone.

Ultimately, the edge reinsurance companies have in the marketpace may be short-lived. Remember, there's not been a severe hurricane, or any catastrophic risk for that matter, that's landed on U.S. shores in at least three years. Prices are going down as reinsurers fight to retain market share and the primary carriers are willing to retain more risk.

With every new turn of the cycle, primary insurers have more options available to them to reinsure the risks they take on on behalf of large Fortune 500 clients.

Catastrophe bonds and other Wall Street risk transfer vehicles are offering the marketplace more options than it ever dreamed of 20 years ago. The marketplace has changed and these days it's a very different landscape and the savvy reinsurers, Swiss Re for example, are those on the cutting edge of alternative risk options. Reinsuring a risk offered them on a silver platter isn't quite enough anymore; and the identity crisis facing Bermuda about how to retool its reinsurance industry in a world of falling prices and expanding coverage has been well documented.

To be successful now and in the future, reinsurers are going to have to become more consultative than they've ever been. The reinsurers need to redefine themselves as capital markets consultants if they want to compete with the Wall Street sharks. Reinsurers, we all know, are fond of doing things "the old-fashioned way," and God knows, they're not in the habit of changing their routine easily.

How many consecutive years has it been that reinsurers have met at the Rendez-Vous de Septembre? And how many meetings have they had in Baden Baden to iron out the coming year's insurance contracts?

Perhaps reinsurers could start by changing venues. Risk managers do that all the time. In the United States, their trade lobby, the Risk and Insurance Management Society Inc. holds its annual conference around the country. The Federation of European Risk Management Associations, which represents the national risk management associations from around Europe, has held it's meeting in Portugal and Switzerland, and will hold its 2008 meeting in the Czech republic in the fall.

It's time the industry tinkered with its "business as usual" model. At the very least it would open the door to new blood, nor would it come as surprise if the industry itself were the prime beneficiary.

CYRIL TUOHY is managing editor of Risk & Insurance®.

August 1, 2008

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