European executives urge reinsurers to take control of their business.

Reinsurance executives in Europe believe the industry is facing unprecedented complexities, made more challenging by the fact that some of their origins fall outside of the reinsurers' control.

"In the post-Enron environment, no balance sheet is too big to fall. As the shock waves of corporate failures hit the economy, insurers and reinsurers find they are in a much less certain world," Lloyd's Chairman Peter Levene told an audience at the 47th Rendez-Vous de Septembre reinsurance gathering in Monte Carlo.

Jozeph de Mey, a member of Fortis' executive committee, said the long-term impact of recent financial-market volatility and its economic impact "have been exceptional over the past 30 months--it was Murphy's Law at its best."

De Mey said there are some silver linings, such as recent stock-market recovery and rising premium rates, but he warned that new challenges can pose risks, given how interconnected the global economy has become.

"Will the European stability pact hold up as a few of the union's members continue to violate its mandate? What will the euro do against the U.S. dollar? Will China be able to continue to grow economically? Will Japan ever pull itself out of recession? All of these issues show that economic stability is not a certainty," said de Mey.

Nicholas von Bombard, a member of Munich Reinsurance Co.'s management board, noted that volatility is the rule in today's markets, and reinsurers must be seen as able to manage that volatility. "Stock-market volatility has made it very difficult for asset managers to do their work," he said.

Levene argued that reinsurance as an industry has to take bolder steps to wrest back control of its business. "Risk managers and other buyers are getting fed up with the endless movement of the insurance cycle," be said. "We must stop behaving like slaves to the cycle. If we act now, we can abolish our dependence on time cycle."

Many heads rolled in the industry's top executive ranks over the past two years, especially in Europe, he noted. "What is interesting is not how many new leaders have been appointed in the industry over the past two years, but that at least eight new top executives have come from outside the industry," he said. "Change is being driven from the top, and it must achieve a fundamental shift in how the industry manages its business."

Such a shift is critical, because evidence already is emerging that capacity is returning to some segments of the market, Levene said.

Von Bomhard said he hears a lot of noise from within the industry that suggests reinsurers and insurers might still have a knack for fooling themselves. "I am amazed by so many big insurers that claim they manage the cycle," he said. "If so many companies manage the cycle, why do we still have it? I would say you have to ignore the cycle and price your products adequately."

Levene also argued that, since many companies are now multinationals, that "opens new threats and exposures to the balance sheet" from various regions and natural catastrophes. "Forty of the world's fastest-growing cities are located in earthquake zones," he said. "In Florida, if another Hurricane Andrew were to occur today, the nonproperty losses alone could be $25 billion--much of it uninsured--and 100,000 jobs could be lost."