from the publisher of reinsurance and fac magazines

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Work for the big boys?

Dear friend,

What a paradox-laden market we have to work in — does it really bear logical analysis?

How much do we really know about anything?

Well, we know that in order to reap the rewards of an extraordinary 2006, we had to survive the unpleasant trials of a disaster-laden 2005.

We know have to be in it to win it. After all, if the purpose of our business is to make money by reinsuring things, we can hardly expect to make any money by not reinsuring things, can we?

But be in what precisely? And to what degree? We also know that if we’re in the wrong place at the wrong time, we’re not going to win anything, except perhaps the scorn of widows, orphans and prosecutors, tinged with the lifelong admiration of liquidators and run-off specialists.

We also know that is it probably better to be a little bit into everything and spread ourselves around. The trouble is, we also know that spreading ourselves too thin will make no economic, or rational sense.

And today the last hard bits of this market have gone soft. There might be the odd tasty morsel to tuck away for the rest of 2007, but 2008 is looking ugly across the board. Everywhere managers are looking at their little rating curves and trying to put there finger on where the walk-away price is.

Just like floodwater inundating the tree-lined streets of a picturesque British riverside village, you can be sure the sandbags of rational resistance will soon be breached and water will be sloshing around at our heels.

The great thing is that it is always someone else’s fault when this happens, isn’t it? “Who let the side down? Who didn’t walk away this time?”

So what’s the solution?

We could always give up and go and work for Munich re and Swiss re. Okay, the pay might not be so good, but the job security is great. Just look at our top 25 reinsurers for some pretty devastating numbers.

The top two global reinsurers do more business that the rest of the top ten put together, and more than twice as much as the sum total of the rest of the players ranked from numbers 11 to 25 inclusive.

But let’s get back to the real human world, where naked ambition and blind greed share brain space with dull rationality and cold logic. Where’s the fun in all of us working for the big two? Think about it for a moment — no stock options, no private equity backers, no bonus plans, no ‘liquidity events’!

No, let’s not think too many rational thoughts, let’s buy each other, and then as much cheap and highly-rated retro we can afford and try and enjoy the party while it lasts. We always forget that when these parties get going they tend to go on for a lot longer than anyone ever imagined.

The time for serious thinking is now past — we’re here at the party so we might as well make the best of it.

My advice: eat a hearty supper, line the stomach with milk, take two aspirins and try and avoid the temptation to make a fool of yourself. And please, please, please don’t try to be too clever — remember that a couple of drinks too many can convince even the sanest person that they are an infallible minor deity.

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