A move toward more insurance securitisation would bring far more competition and be led by the most efficient of firms, Centre Re (Bermuda) Ltd. CEO, Michael Hamer told a Bermuda Insurance Institute luncheon yesterday.

Securitisation -- the bundling of insurance risks into securities -- is favoured, he said, by investment bankers seeking large fees for structuring, distributing and trading securitised risk. Large insurers with property catastrophe exposures also are interested, as are some reinsurers. Investors are cautious, although some classes of insurance risk would provide opportunities for investment diversification because of their low correlation with other asset classes.

He said: "They are also a little suspicious. They are saying why should I rush in to take risks that professionals are trying to get rid of? What am I missing here?'' Information is a problem; in property catastrophe, there is price and loss experience information, but little on exposure. More development is also needed of catastrophe computer models.

He said large, sophisticated investors are sensitive to the issue of whether or not their returns or losses come from capital or income. They also want liquidity to trade out of positions going bad, although liquidity won't happen until more issues of significant securities are developed.

Those against securitisation include some large reinsurers, who don't want to lose the advantage of being able to write large programmes in areas where other people are unwilling to go.

Mr. Hamer said: "Large reinsurers who can profit from mis-pricing that is caused by capital constraints are unlikely to welcome competition, and reinsurance brokers might fear the encroachment into their historical territory by investment banks.'' Some regulators also have a problem with this new direction.

If there is a significant future for securitisation, not only will operationally efficient firms take the lead, but franchises and good distribution channels will remain important, while capital strength remains vital. And insurance companies may become more involved in trading, supporting and investing in insurance-based securities.

Michael Hamer BUSINESS BUC