Dear Friend,

No wonder we’re all confused — this crème brûlée market is developing a nasty habit of playing tricks with the mind.

For one thing I don’t understand the retro market right now. Ever since the turn of the year we’ve had tales of hardening, burning, peeling, cracking, flaking and finally crumbling in this most limited and difficult of sectors.

But the signals are massively contradictory — yes — the odd unplaced 1/1 is still floating around, looking for a home and later-renewing programs have been brought forward in anticipation of a capital crunch. Similarly, anyone with any spare capacity has been digging his heels in and upping prices left, right and centre whilst simultaneously pruning coverage back to the bone. I realise I spoke about this at length last week, so I won’t go over the same ground twice

Anyway, from here the logical script would be that this would be the ideal opportunity for the class of 2005 to step in and save the day — after all, filling the gaps in this sort of market breakdown is just what all that money was raised for last year.

But now we get to the really crazy part — the class of 2005 is not being used to the extent one would expect. The reports I have had are that buyers are wary of giving them meaningful shares of business, let alone letting them to quote and lead.

One broker I spoke to last week told me of his frustration at setting up a deal with a class of 2005 player, with extremely competitive pricing and wide coverage, only to see the new reinsurer’s security rejected at the last minute. No wonder the sidecar format is proving so popular because this way of doing things keeps everyone happy — cedents get to do business with the players of their choice and the players get the capacity they need.

But the fact is that buyers just aren’t buying in any volume at these prices — in crude terms, they’re either simply writing half as much for double the premium, or pulling out of Cat areas altogether. And who can blame them when investment returns have made an excellent rebound and all non-cat lines are still making bags of money?

It makes you wonder why the class of 2005 bothered.

And what the nascent class of 2006 makes of this is anyone’s guess