Dear friend,

This Connecticut Attorney General Guy Carp business is getting my head in a spin.

I don’t think that these State prosecutors and competition wonks have a clue what they are doing.

Facilities and binders come about when you have a whole pile of business that nobody really wants to do individually, but when you add it all up it comes to something worth getting out of bed for.

If a small cedant who hasn’t got enough income to maintain a decent sized treaty wants a 33% proportional bit of Fac on a risk that pays a sum total of $6,000 in premium, no-one will look at that business on a bespoke basis – it will lose them money — it is simply not worth doing for $2,000 less commission (and don’t even think about hitting minimum brokerage).

So unless there is a facility up and running the business is going to have to be declined to the original customer — and presumably end up on the books of a bigger national competitor, who may (or may not) charge more.

Maybe it’s not fair — but that is how capitalism works — the small and weak don’t get such good deals as the big guys — why should they?

It’s as simple as that — brokers have to ‘steer’ business of this sort into facilities. This is not out of greed — it is simply that otherwise they would have to turn it away. In fact it’s not steering at all.

It’s take it or leave it, but it’s an honest sort of take it or leave it. You can’t be steering if there is only one road to take in the first place. Take it or leave it is fair — and don’t forget that there are many other competing facilities and many other brokers out there.

The client never has to buy, he can walk away and try something else.

Also the main allegations against Guy Carp presuppose that there was an open market ready and willing to accept small business to which the broker was somehow denying its customers access. But no such market exists, except perhaps for direct writers (who would probably give less commission and impose harsher terms).

Are the powers that be saying that reinsurers should be forced to quote against their will on business that is uneconomical to service?

They might as well propose nationalisation of the reinsurance industry and have done with it!

They just don’t understand — but this doesn’t mean they won’t try and ‘improve’ the market and end up making everything less competitive.

Here's that complaint in full - 107 pages of scary reading!

And here’s a little family parable about understanding:

Last night I got home to the family and did the usual fatherly thing of asking how my son’s day at school had been:

“Did you have a nice day at school”

“Yes”, came the slightly perfunctory response, in that dulled uninterested tone that children use when they’re learning by wrote or collectively saying good morning to the teacher.

So I thought I’d try a different tack

“Did you score any goals?” (he loves football, so this usually gets his attention)

“Yes, I scored two — and one was with my left foot,” he added proudly (for everyone knows that in our right-footed universe left foot goals count at least double)

Now I had him warmed up I thought I’d go in for the big one:

“What did you do in class today?”

“We did English.

"I like English.

"I am very good at English.

"English comprehension is my favourite.” He chirped.

Wow, a proud dad moment — only six and already an academic genius (just like his father!)

“So, do you know what 'comprehension' means?” I asked, expectantly.

“No” came the answer, accompanied by a winning six-year-old smile!