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Like candy from a baby

Dear friend,

Oh, how a broker’s ear becomes tuned during a soft market! As an example, here are the words of a CEO at a top 10 reinsurer ahead of renewals:

“Look, you already know where we’re coming from and you know we’re going to have to walk away if pricing comes below our minimum target levels…”

Yeah, yeah, but wait for it, wait for it, my broker’s ear senses that this is the point where he is about to say ‘but’…


Ha! — I knew he’d say ‘but’! (But it’s rude to interrupt, so I’ll let him carry on):

“But we don’t want to let that spoil the excellent relationships that we have had with you over many years and decades. Come and talk to us — we might have to back off your main programs but there are other things we can be doing to keep the relationship going.”

Oh sweet music to a broker’s tired ears!

The seductive melodies sung by a chorus of sub-layers, new top layers, deductible buybacks, sideways protections, write-backs and top and drops begin to waft past my ear.

Suddenly I am like a little boy on his first trip to a candy store, staring up at the heavenly rainbow of gobstopppers, gumdrops, liquorice allsorts and sticky humbugs on display. The only sensible thing to do is drop one’s jaw in shear awe as the jewels of endless possibility sparkle above one’s head.

The trouble is of course that humbug is exactly what it all is.

Just as too many sweets rot your teeth and spoil your appetite, so reinsurance exotica have a tendency to induce bouts of painful and expensive indigestion if taken on too regular a basis.

There is no long-term substitute for bread and butter business and the only known cure for a bout of candy overload is a prolonged diet of bread and water, (and not without the attendant condiments of fire and brimstone and sackcloth and ashes).

But where is all the healthy wholegrain business to be had these days? It sure as hell isn’t coming looking for reinsurers. Walk-away pricing works both ways – you walk away and they do too. The logical conclusion? Simple — don’t walk away!

The hurricane season has only a few weeks left to run and with only a minor tickle from the UK’s summer flooding to keep us honest, the obscenely obese 3Q profit numbers are literally rolling in.

Meanwhile the dollar is plummeting to multi-decade lows and anyone with a euro burning a hole in his pocket is looking to make the most of a chance to buy US assets at a historical discount (although the up-front dollar prices are rich, to say the least).

Brokers all over the world are crying into their beer – all that shiny new soft market business on offer is never any real substitute for a perky dollar and across the board rate rises. Major broker consolidation is the only outcome I see from all of this.

Back to our top 10 reinsurance CEO:

“…I just want to reiterate that we value our best client relationships extremely highly”.

Here we go again.

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