Dear friend,

With only one or two exceptions, this quarter has been pretty ugly for results hasn’t it?

Well, get used to it. You knew it was going to happen sometime and that time has now come.

It’s only going to start getting worse from here.

I expect we’ve got one last year of genuine profitability, perhaps followed by one with profits of the more cosmetically-enhanced and surgically-altered variety before the red numbers start making their presence really felt.

First the reserve releases start drying up.
Then the reserves themselves start drying up.
Then the suits at the ratings agencies start notching up.
And then the run-off guys start mopping up
and the liquidators start adding up.

Only then can the market turn properly and reserve additions start flowering like desert cacti after rain.

Then we can all get down to business again.

Brokers are more cost-sensitive and always feel the pinch and show the pain first. I feel that the tough but necessary decisions we have seen taken this quarter by some of the big players are a presage of things to come for everyone else.

What can you do?

Keep you head down and your mouth shut, don’t leave where you are for some hair-brained start-up and whatever you do, don’t to talk yourself out of a job by declining too much, or blow yourself out of a job by underwriting too much.

Got all that?

Posted by Mark Geoghegan at 5:36 PM | Permalink | Comments (0)

Dear friend,

The inevitable always happens. That is why it is inevitable!

But it’s strange how what is inevitable often comes as a shock when it finally does happen.

Houses grow in value at 15% a year for 8 years until nobody can afford them, then they put on a final inexplicable spurt before crashin hard.

Why does it surprise us?

After all, none of us believed that houses were worth what they were selling for, but when prices finally start falling towards a more realistic level, we don’t like it.

Similarly, credit expands at breakneck speed for almost a decade, accelerated further by all sorts of questionable financial engineering. We enjoy the illusion of new-found wealth while this new money spreads throughout a world looking unsuccessfully for a profitable home.

But when no profitable use for the money can be found, leverage unwinds and the inevitable contraction comes, we howl in pain and plead for mercy.

Hilariously, we then make a logical flip and blame the fall of overpriced housing on the credit crunch.

And the next bit is even more perverse — we then plead with our elected representatives to find more and more ridiculous ways of making credit cheaper so that our young first-time buyers can afford the (still overpriced) houses and prop up the market for the rest of us.

It’s all a bit like offering a drunk one last drink to ease his hangover — sooner or later you’re going to either run out of booze or he’ll drop down dead from liver failure.

Neither end result is one that we would recommend.

‘Well’, we tell ourselves, ‘at least our industry is a less perverse no-nonsense sort of place to work.’

Or perhaps it is just perverse in slightly different ways? But that’s one for another day.

After a long period of pressure the inevitable has finally happened in our neck of the woods.

Falling margins in the reinsurance broking sector have lead to a savage round of blood-letting and cost-cutting. And there will probably be more pain to endure before this episode comes to an end. After all, pricing is not turning, the dollar is still weak and demand is still slack.

It may be a shock to the system, but no-one can escape falling margins.

So let’s not make an unedifying prospect of ourselves by making too big a deal about it. We’ve had a good run.

When they start nudging upwards, we can all come out to play again.

But until then I’m afraid it’s economy class — and keep your head down.

Look after yourself.

Posted by Mark Geoghegan at 11:15 AM | Permalink | Comments (0)

Dear friend,

Yesterday in London a strong wind blew in off the North Sea (that foreboding stretch of dark water between these fair isles and Scandinavia).

The temperature of the North Sea is barely above freezing at this time of year – come to think of it, it is barely above freezing at any time of the year, so the east wind is a cold one, even if it is usually accompanied by a deceptively clear blue sky and bright sunshine.

We’re lucky that the prevailing wind here is from the much more temperate south west – and we don’t have to contend with this Siberian monster too often.

But I suppose this lulls us into a false sense of security.

As I scurried outside in search of a lunchtime sandwich, the icy breeze blew straight through me. It worked fast.

By the time I got back to the office I wasn’t feeling that great.

And by the evening I managed to nod off halfway through a performance of the Woman In Black, a supposedly terrifying ghost story set as a West End play.

‘Chilling’ read the reviews – but the only chilling I got was another blast from the frozen wastes on my way back to the subway. I had even felt cold inside the theatre, normally a stiflingly hot place at the best of times.

So you may have guessed I am not well in body and am writing this from home as I try to wrap up warm and recover from my aching chills.

But there’s nothing wrong with my mind, I don’t think.

I know that as a journalist I shouldn’t say this, but the news can be such a distraction, that at most times it is best ignored. But some news is genuinely interesting.

The Brazilian market is finally open - after at least 30 years of news stories speculating about when and how this might happen. This is a big deal.

Brazil is an amazing country – and for westerners in many ways it is more amazing and exciting and offers more opportunities than China or India.

It’s a vast democracy with huge natural resources and not too many problems with natural catastrophes (barring the odd tropical storm popping up where it shouldn’t!)

In typical Brazilian style they made us sweat for it (and made this editor look like a fool in the process! But you knew that anyway, dear reader) but pretty soon this market will go from just three to at least thirteen reinsurers.

But now that the place is open - it looks like it’s genuinely open and ready for business with no holding back. These Brazilians know how to party.

And sitting in a northern country that still hasn’t got round to having a spring day this year, I can but fantasise about that other east wind – the one from the South Atlantic, cooling and caressing a sun-kissed tropical Brazilian beach.

No wonder the Brazilian regulators were having trouble processing the applications!

Posted by Mark Geoghegan at 2:38 PM | Permalink | Comments (0)