Andree Sassoon, director of Capital Reinsurance Co.'s new Paris office, stands at the frontier of the municipal bond insurance industry.

Ms. Sassoon is charged with increasing Capital Re's network of reinsurance agreements throughout Europe and Japan. And since insurance capacity for certain credits in the primary markets is an increasingly rare thing, continued availability of credit enhancement depends in a large degree on efforts like hers.

Since opening the office April 1, Ms. Sassoon already has brought two new customers on board to Capital Re's agreements. French insurers Abei Re and Transcontinental Re have assumed municipal reinsurance exposure, or retrocessions, for the first time.

Capital Re provides backbone to every major bond insurer in the market. Along with Enhance Reinsurance Co., Capital Re aassumes exposure for a premium, which allows firms such as Municipal Bond Investors Assurance Corp., AMBAC Indemnity Corp., and Financial Guaranty Insurance Co. to underwrite more new business.

In fact, in credits where new issue premiums and exposures are close to rating agency-defined capacity limits, reinsurance is the only meaningful way to expand business, industry executives say.

Education Is a Key Factor

Ms. Sassoon, a former vice president of marketing and underwriting at Paris-based Axa Reinsurance Co., said she brings "a continental perspective" to the task of further syndicating exposure. Much of the challenge in Europe lies in educating property and casualty insurers about the peculiarities of municipal risk.

"Our goal is to make [municipa risk] palatable to the reinsurers," Ms. Sassoon said. "Their guidelines say no 20-year risk accumulations, for example. We adapt the structure so they can participate.

"In credits like New York City," she continued, "the initial reaction is, 'We read a lot about the city, what does it mean?' And we help them get comfortable."

Methods of educating potential customers include using case studies of landmark municipal events such as New York City's crisis in the mid-1970s, the Washington Public Power Supply System's 1983 $2.25 billion default, and Philadelphia's recent cash shortages.

"We don't hide these events," Ms. Sassoon said, "but rather highlight how they got resolved."

The municipal market is not completely new territory for many European institutions, thanks to international efforts by Financial Security Assurance Inc., FGIC, and MBIA. Reinsurers seeking retrocessional treates, as a result, must tread softly in the continent, taking care not to infringe on existing reinsurance agreements between primary insurers and European companies, Ms. Sassoon noted. At least 15 overseas firms have such arrangements with the major bond insurers.

Significant market penetration has been achieved in Switzerland, Germany, the United Kingdom, and the Scandinavian countries, but many pockets of unused capital still exist -- first in the French and Japanese markets and, later, in Italy and Spain, Ms. Sassoon said.

Recent Hard Times in France

In France, property and casualty insurers are coming off very hard times. The 1988 Piper Alpha oil rig disaster, which claimed 167 lives, resulted in well over $1 billion of marine and non-marine claims. That same year, windstorms inflicted $3 billion of losses, and last year a bout of devastating storms across the continent triggered still more claims.

Ms. Sassoon said financial guaranty reinsurance appears very attractive in this climate. "The results in the European property/casualty circles have been severe," she said. "Now they are saying, 'Let's look at other lines that are less traditional but maybe have more profit.'

"And we're marketing municipal reinsurance as an area that they've neglected," she added.

On the other side of the globe, the Japanese property and casualty market is somewhat static because of temporary uncertainties affecting the financial markets there, Ms. Sassoon said. Nevertheless, she is working continually with Tokio Marine, Sumitomo Re, and Yasuda Re and hopes to expand reinsurance assumptions in the future.

The European reinsurance market differs slightly from the domestic market in the loyalties there are defined by profitability, Ms. Sassoon said. If a firm assumes exposure and then takes a loss, it probably will not renew the offending treaty. "Europeans tend to switch after a loss and go wherever the best price is," she said.

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