Although bond insurers last year appeared to be seeking ties to a more diverse group of reinsurers, including more foreign companies, the trend. appears to have eased a bit this year.

According to volume figures for the first nine months of 1993, bond insurers have greatly increased the amount of business they are ceding to the industry's two major domestic reinsurers -- Capital Reinsurance Co. and Enhance Reinsurance Co.

Enhance reinsured $5.1 billion, gross par amount, through the first three quarters, a 104% increase over the $2.5 billion reported in the same period in 1992. Capital Re said it reinsured $6.7 billion for the first nine months of the year, up 26.4% from $5.3 billion in 1992's first three quarters.

Michael E. Satz, president, chairman, and chief executive officer of Capital Re, said last year's increased reliance on foreign multiline companies, which write many forms of insurance other than bond insurance, was the result, not of a change in strategy, but of large reinsurance premiums that had been contracted out to European firms to meet specific business requirements at the time.

"Our feeling at the were was that the primary companies were seeking more efficient reinsurance solutions, and [we] pointed to the reality that the amount of companies available outside the U.S. to accept premiums had steadily and rapidly declined over the last three to five years," Satz said.

At the same time, it is clear that the primary insurers arc retaining a higher percentage of premiums, rather than ceding them to reinsurers, because they are expecting volume to drop in the coming years, rating agency officials said.

Through Sept. 30 of this year, the primary monoline insurers had ceded to reinsurers $137 million, or 14.2%, of the $966 million of gross premiums written during the period, according to Fitch Investors Service. In 1992, the primary insurers ceded 18.8% of $1.05 billion of the gross premiums. In 1991, 23% of $765 million of gross premiums were ceded, according to Fitch.

"The primaries seem to be holding on to even more business than before, as the percentage of cessions continues to drop," David Litvack, vice president at Fitch, said last week. "This would appear to be coming at the expense of the European multiline reinsurers."

Litvack said that the primary firms bought back premiums from several Scandinavian reinsurers hit by rating downgrades this year, which added to the decline.

Wallace O. Sellers, chairman and chief executive officer at Enhance, said, "Obviously the volume has been stunning. Needless to say, we are pleased to show written premiums up 65% in nine months, and our reinsurance premiums are up 110% over last year."

Reinsurance and total premiums have already exceeded the totals achieved for all of last year, Sellers said.

Capital Re's Satz said that "while potential growth from a reinsurance perspective is not unlimited, we believe that growth continues to be available for our company. The core business, municipal reinsurance, will remain reasonably strong, and we are seeking to supplement that with further diversification."

In the coming year, Satz expects Capital Re to join Enhance in diversifying its offerings, but he would not specify what the products or services will entail.

"We are exploring a number of alternatives, and will be materially diversified in our product mix into 1994," Satz said. "We will be very focused, and new products will likely be related to the core business and involve a type of asset class -- like residential mortgages -- that we've had prior experience with."

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