from the publisher of reinsurance and fac magazines

About this page

This page contains a single entry from the blog posted on July 14, 2006 2:14 PM.

The previous post in this blog was Flea-sized markets get prices wrong.

The next post in this blog is The perfect market.

Many more can be found on the main index page or by looking through the archives.

« Flea-sized markets get prices wrong | Main | The perfect market »

Soggy toast

Dear Friend,

On my travels in the last week I've been picking up the scrag ends of a hundred conversations overheard in the many dark alleys and assorted bars between Fenchurch and Leadenhall.

Here's a selection of three:

“Coast is toast” — apparently this one's getting to be quite a catchphrase at the moment.

And another: “Same layer, same price, double the retention”

I'm sure the remaining retro players are loving the sound of that one!

And how about this? “We're a quarter of a the way through the season – if we don't get a big storm soon — I think Gulf wind rates could fall off a cliff.”

How do you get from the first two to the last one? Surely there must be something wrong? Why might rates fall off a cliff when all they seem to be doing is tightening?

The answer is simple — if you believe the first market consensus that coast is indeed “toast” that fits in with the whole crème brûlée idea I'm doubtless you're sick of me spouting.

Apologies for mentioning it again, but according to this worldview, the Gulf Coast is indeed the caramelised topping on our favourite sloppy French-named pudding.

But that means that there are plenty of extremely good risks out there getting unfairly caned because of a lack of reinsurance supply. But as we must keep reminding ourselves, global capacity is undented and the only reason it is not being deployed is because of a lack of will, not a lack of financial strength.

To put it in base terms, after a crummy 2004 and a terrible 2005 no-one wants to be taken for a chump in 2006 by writing a whole bunch of Gulf wind exposure. This explains the doubling of retentions for the same premium spend.

But therein lies the opportunity – which brings us on to the third comment.

Don't forget that most of the rest of the world is in an accelerating soft market and today's prices are about as good as you can get without turning your clients away in disgust.

This opportunity hasn't escaped some well-respected market leaders — so how many more North-Atlantic Hurricane-free days is it going to take for the perception to change and the unseemly stampede to begin?

Coast may be toast, but after too long sitting on top of a congealed crème brûlée, even the most carbonised crusts can get a little soggy!

Post a comment

(If you haven't left a comment here before, you may need to be approved by the site owner before your comment will appear. Until then, it won't appear on the entry. Thanks for waiting.)

"Welcome to the reinsurance industry’s first dedicated blog!
This is your chance to tell me exactly
what you think of my opinions and voice your thoughts on the issues driving our industry. Make sure you bookmark my blog today!"
Katherine Blackler