As Hard Market Approaches, Insurers Must Understand Risks.The long-awaited "hard market" may finally land in the first quarter of 2000, but don't expect higher insurance and reinsurance The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract. prices and tighter coverage in all areas. A hard market occurs when prices rise noticeably no·tice·a·ble adj. 1. Evident; observable: noticeable changes in temperature; a noticeable lack of friendliness. 2. Worthy of notice; significant. and coverage becomes harder to place. Reinsurance pricing and availability are sensitive issues in the captive captive said of naturally wild or feral animals kept in captivity for educational and scientific investigation with no attempt being made to domesticate them. market, which is flourishing flour·ish v. flour·ished, flour·ish·ing, flour·ish·es v.intr. 1. To grow well or luxuriantly; thrive: The crops flourished in the rich soil. 2. . Typically, a captive sponsor provides capital to meet the lower-level insurance needs and reinsures higher-level exposures. Michael Woodroffe, president of Meadowbrook International, a Bermuda-based reinsurance broker, warned that a move to a harder market wouldn't be uniform, and some areas of coverage would be hit harder than others on price and availability. "It's been said that a captive is only as good as its reinsurance," said Robert J. Rosser, a senior vice president at Skandia International Risk Management, Bermuda. At heart, offering reinsurance is not unlike running a casino, said John Berger, president and chief executive officer of Chubb Re, Bernardsville, NJ. Reinsurers and insurers have to understand the odds, accept only independent exposures and limit the biggest bets or exposures. Capital-market transactions, such as catastrophe bonds catastrophe bond A debt security with a payoff tied to the relative severity of a natural disaster such as a hurricane or earthquake. Bondholders are paid with insurance premiums but may have to accept reduced principal repayment in the event the specified and securitizations, are capturing headlines but may not be as grounded in certainty as they first appear, Berger said. "We're getting ahead of ourselves in thinking that we know what the true odds are," he said. Investment bankers Investment Banker A person representing a financial institution that is in the business of raising capital for corporations and municipalities. Notes: An investment banker may not accept deposits or make commercial loans. are creating sophisticated products that cover high levels of risk, but those products fall short in some areas. The prospectuses are complex, the offerings haven't been tested by losses and assessing risk is, at best, an educated guess. |
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