reinsurers will continue toward more consolidation in the future, with mergers and acquisitions.

That was the view espoused by chairman of Centre Reinsurance Companies and Zurich Reinsurance Centre Holdings, Steven Gluckstern, during panel discussions on future trends in the industry, moderated by founder and former ACE Ltd. chairman, John Cox.

With respect to the kinds of returns that can be earned in traditional risk relationships involving insurers and reinsurers, Mr. Gluckstern said it was becoming more and more difficult to satisfy shareholders.

People, he said, are looking for the kind of scale needed in order to have a comprehensive relationship between risk-taker and risk-provider. Insurers are concerned about the ability of these firms to withstand the heavy cyclical losses typical in the industry.

"Even today,'' he said, "in asbestos losses or environmental losses, the reality is that people don't really know how they will end up. They're not really sure how big the losses will be.

"That's one of the reasons that people will grab for size. If you have a little more size, you are more likely to withstand the losses, the size of which are still in the realm of the unknown.

"So big players will continue to get bigger. That is being demanded by customers, who are correctly getting more and more nervous about dealing with people who can't withstand those kinds of shocks that are inevitable in our business.'' ACE chairman and CEO Brian Duperreault said movement to size is not just being driven by buyers. Brokers and rating agencies are pushing for size, too.

ACE vice chairman, Don Kramer, whose Tempest Re was acquired by ACE, talked about the unemployment of capital in the reinsurance industry.

He noted: "Bermuda now has seven companies that have excess of a billion dollars of capital. Only the United States has a greater number. There are not that many in the UK.'' But he also said that while it was true there were significant moves toward consolidation, there were also some 465 new companies in the business that were too new to be assessed by rating agencies.

And Mr. Kramer said of Lloyd's of London that it is "one of the last places on earth where a couple of people with an idea can get some capital and get access to 39 states of the US and maybe 40 or 50 countries''.

ACE conceived the plan to buy into Lloyd's at the end of 1995 with more concern about the institution's future than concern about the problems of the past.

Mr. Duperreault said: "We felt that Equitas would go through. What we were concerned about was what Lloyd's would look like going forward as a trading entity and what were those risks as it operated in that tough, competitive global market.'' He said Lloyd's underwriters of the past had not used the most sophisticated techniques in risk assessment and they had an inefficient process. But he said Lloyd's was making the right steps to rectify those problems and better manage its capital.

Mr. Kramer said that the $13-billion Equitas pool, designed to deal with the Lloyd's liabilities from the past, will continue for a surprising number of years.

Mr. Gluckstern said Lloyd's historically had an underwriting assumption that risk was like a commodity, which today is recognised as a false premise. He said that one of the dramatic changes already noticeable at Lloyd's is a greater emphasis on information in the process of underwriting.

He also said: "Many of the underwriters now recognise that this notion of being closer to your customer is actually a real thing that can help you in the process.'' Meanwhile, the Bermuda market was being viewed as a location of choice with an insurance environment that was attracting not just capital, but also underwriting talent.

Addressing a question on whether contract language can be changed or improved, director of risk management for Minneapolis-based Medtronic, Inc., Jean Kennedy, said corporations will seek a higher degree of certainty in the future about how risk transfer products will respond when an event takes place. And anything that can be done to strengthen that would be welcomed.

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