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Cancel the skiing holiday

Dear Friend,

Just back off the plane from Monte Carlo and here’s the sellers’ pitch for the year:

“A large chunk of this year’s profits are going to be wiped out, but unless something really bad happens and the total loss doesn’t exceed $Xbn (insert random number between 30-60 for X), our loss estimate and our capital isn’t in any danger. We’re planning to hike rates pretty much across the board or at least stop them falling. It all comes out of the same pot, you know.”

And here’s what buyers are saying:

“If they think we (insert non loss-affected territory as required) are going to pay for this, they’ve got another thing coming — we’ve been subsidising the US for too long.”

Wasn’t it always like this?

The brokers are the guys getting it in the neck from both sides — but that’s what they get paid to do! Although I bet they probably wish they still get paid brokerage on reinstatements, they’re still looking at a pretty good scenario overall.

Unless there really is a capital crunch and those left standing really do get to increase rates substantially, demand should be up, and rates should end up flat over all — up a bit here and down a bit there.

Many brokers told me that lots of their loss-affected clients are probably kicking themselves that they didn’t buy more cover last year, just for the sake of a few points on the rate on line. And a senior figure at a top-three reinsurer told me that he couldn’t think of a better advertisement for buying quality reinsurance than Katrina.

But the X-factor here is capital depletion – no significant capital depletion, no market changing event and no change in the soft market part of the cycle in which we find ourselves. And don’t forget that there is a massive pile of capital waiting in the wings, itching to put itself to work in the reinsurance market should it be required — the providers are so flush that it will take a lot more than Katrina to put them off investing in reinsurance.

And as I got very used to hearing this week “it’s far too early to tell”.

The only certainty is that the renewal season is going to start much later than usual and is going to be stretched right to the end of the year.

No buyer wants to look weak by coming in early for cover. The price of ending uncertainty for buyers will be definitely be higher this year than last year, but my gut feeling is that canny buyers are going to call the market’s bluff and wait until someone blinks.

So it’s a busy Baden Baden and a long December that we have to look forward to.

Cancel the Christmas holiday — there will be no rest for brokers until the middle of January.

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