One of those at the leading edge of such innovation is Centre Re, reports business writer Ahmed ElAmin With stagnant or falling premium income, and tougher competition for a deal, insurers and reinsurers are finding new ways to make a buck. They're also helping companies save money by offering new, non-traditional products in market. In the trade the products are referred to as alternative risk transfers (ART). While not everyone agrees on what ART means, it's a catch-all name describing a wide array of products companies use to augment their insurance coverage, or free up capital. And it's blurring the line between the financial market and the insurance market, transforming the industry. ART may include anything from self-insurance through some form of captive, to creating sophisticated financial products protecting a company's bottom line. The market is booming for ART products. Mert Segal, chairman and chief executive officer of US-based Meadowbrook Insurance Group Inc. said a survey indicated ART was taking a increasing slice of the property catastrophe market. In 1991 ART accounted for 31 percent of the $51 billion in premiums written in the US. Last year ART accounted for $34 percent of the $68 billion written. By 2002 it's estimated ART products will earn about $96 billion, or 38 percent of the $254 billion written. "Reinsurers have established new relationships with ART,'' he said. "It's a risk sharing partnership.'' Bermuda-based Centre Re Holdings Ltd. is one of the companies on the cutting edge of designing such products. But others are moving into the market.

"Customers are increasingly demanding more innovative approaches to their overall risk management needs,'' David Brown, president and chief executive officer of Centre Re, said during a discussion of the subject at last week's International Reinsurance Congress at the Southampton Princess. Mr. Brown stresses ART products are not a replacement for traditional reinsurance, but rather serve to complement such coverage. "It's very rare to solve problems with a single product,'' he said. For example this year Centre Re made a deal with RLI Corp., an Illinois-based insurer, to buy up to $50 million in non-voting shares in the company if an earthquake caused enough damage to blow though the roof of its existing reinsurance coverage. RLI is paying about $1 million a year for the options, or about 80 percent less than the cost of buying additional reinsurance. The product is called Catastrophe Equity Puts and was developed by Aon Re Inc. and RLI. This year Centre Re made a similar $100-million deal with Horace Mann Educators Corp. "ART is another way of providing capital to a company to enable it to write more business,'' Mr.

Brown said. In another deal Centre Re helped USAir Group Inc. free up $70 million it had tied up in its workers compensation insurance programme by agreeing to back letters of credit. USAir used the $70 million to pay down high priced debt, while Centre Re received a premium and the collateral of various USAir assets. Centre Re has in effect taken on the credit risk of the airline in exchange for collateral in the form of aircraft equipment. "ART is insurance as a form of capital,'' Mr. Brown said. "It addresses fundamental issues such as net income, earnings per share, ratings, and capital structure.'' However those providing traditional insurance can rest easy. The ART market, while lucrative, is not about to take over the world. "ART is not a universal panacea,'' he said. "It will never replace traditional insurance.

ART is not only an alternative way of providing insurance. It is demonstrating that insurance can be an alternative to other risk markets.'' Peter Gentile, president and chief executive officer of US-based Gerling Global Financial Products says ART products are creating new opportunities in the market.

Companies are being presented with an affordable way to manage risks which were previously uninsurable. He defines ART as all non-traditional, financially oriented products, including the new insurance-related capital-markets products. For example ART products may be used to cover legal liabilities resulting from sales force misrepresentation, employment practices, hedging and derivative activities and product liabilities which cause potentially billions of dollars of losses in the US. ART products can cover "things that go bump in the night which could impact on shareholder value,'' he said. "... They represent efficiently priced solutions to problems that industrial companies are facing.'' PHOTO DAVID BROWN -- "Customers are increasingly demanding more innovative approaches to their overall risk management needs.''