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December 2007 Archives

December 17, 2007

Head for the hills!

Oh what a brilliant year we’ve had and what a soft market we have created for ourselves!

But who are we to complain? It’s a bit like a millionaire lottery winner griping because they can’t walk down the street in their home town anymore, or a UK resident moaning about how having unexpectedly sunny weather for months on end means that we’re running out of fresh water!

One thing is the natural consequence of the other. No one said this reinsurance business was easy, did they? Just look at the past five years, and many have made big bucks in 2003 and 2004. Okay, we have lost a tiny bit in 2005 and now we’ve coined it in for 2006 and 2007.

If you want a proxy for this, just plot yourself a graph of the surplus capital of any of the class of 2001

We often say in this industry that we are always committing the cardinal sin of leaving money on the table for our customers (or enterprising brokers) to pick up. Well, that argument doesn’t wash right now, does it? There is no money left on the table because it is stuffed into our bulging pockets, crammed down our trousers and spilling out of our ears onto the floor.

To spoil a mining catchphrase, “there ain’t no gold in them thar hills no more — it’s all in the big Chubb vault down at the insurance office.”

Like a cardsharp who’s just scooped the big pot, now may be time for a hasty exit before an angry posse rounds us up and runs us out of town. (Come to think of it, Florida’s Sheriff Crist already tried the posse idea last year!) One way or another we’re going to start giving some of our gains back next year

Competition is rightly savage across the board. I’m hearing war stories of rates off by 40% or more in the Fac market. This is just the beginning — there is going to be one hell of a renewal season because the treaty market is sleepwalking into a pricing firestorm. The initial quotes are way off the mark, so we’re set for another extremely late renewal season — the third in a row

The big difference this year is that big buyers are in a strong enough financial position to call reinsurers’ bluff and walk away. It only takes one long-standing customer to jump ship and the whole mindset of an underwriter starts to change

I’ve witnessed it first hand as a broker — you quite literally see the stuffing knocked out of someone and you can hear the air hissing out of their bubble of bravado. The old certainties can no longer be relied upon — all conventional laws of physics are suddenly suspended

At that point their egos shrivel and they start being overly friendly in an insincere reversal of roles. Time was it was your job to laugh at their jokes and pay for lunch, now it’s suddenly you who is receiving the gold-leaf embossed invitations and quizzed on your gastronomic preference for Italian or French cuisine

Up is down — north is now south and everything, and I mean everything, is suddenly negotiable. Hard markets always beget soft markets You may have never had it so good, but the good times are coming abruptly to an end

The posse’s on the edge of town — head for the hills

December 14, 2007

The market speaks

Dear friend,

A few years ago when I was working on a stock market advisory newsletter, one of our stock tips was the target of a takeover play.

Subscribers were calling in to our switchboard asking for advice — should we sell now or hold on in case more bids materialised?

I didn’t have a clue so I called our top tipster for advice.

“Never mind what I think, what’s the share price doing?” were his age words.

And a look at the Kiln share price this week would have told you that the market had a good hunch that a Kiln bid was serious. After the initial spike, the price closed steady higher over the week until the agreed bid price emerged this morning.

A cracking deal for all concerned – Kiln shareholders finally get a reward for their patience and Tokio Marine makes off with one of Lloyd’s crown jewels.

Over the long-term Kiln names might feel they have something to worry about, but at least right now the acquirer has made it clear that buying them out is not on the agenda.

Just under half (47%) of Kiln’s flagship syndicate 510’s capacity is still provided by names, making it one of the last great refuges for unaligned capital at Lloyd’s.

Come to think of it this is probably good news even for the remaining names — if shareholders have just got themselves a good deal in the stockmarket, just imagine what names might be able to get in the capacity auctions in 2008 and beyond if Tokio decides to build its share?

When the next auction comes along, one thing is for sure:

We’ll all be sure to be looking at the market, rather than what is being said or written.

December 10, 2007

Underwriters are toast

Dear friend,

We love our catchphrases in this market, don’t we?

“Coast is toast” — do you remember that one from last year?

This was the underwriters’ catchphrase as Gulf of Mexico-exposed property programmes got their prices doubled and their limits halved in a frenzy of capacity contraction and entrepreneurial opportunism.

Well, I’ve got a new one for the 2007/2008 renewal season “underwriters are toast”.

This week I have heard of so many schemes and ruses designed to allow underwriters to keep their income up and hit their targets it is making my head spin. At one point I even thought I started hearing someone say “film finance”, but then I realised I was delusional from over exertion.

Parallel indemnities, deductible buybacks, aggregate sub-layers — they’re all short-term, soft market schemes designed to put a little bread in the jar before the landlord comes calling for the rent.

At the same time I’m hearing of rates plummeting by 50% or more in some cases.

Just where does this leave the idea of a managed slowdown and the phased disengagement with the softening market in 2008 that we have been hearing so much of?

We’re at that point of no return again — please don’t do anything stupid.

If a broker walks in with some new scheme that sounds stupid, that means it is stupid. Send the broker packing before you can be seduced.

If you want it bad enough, and the broker is skilful enough, what sounds stupid at first can seem alluring and attractive after a thorough ‘explanation’.

The trouble with the really stupid stuff is that it quickly descends into farce, but then re-emerges as melodrama before mutating into long-drawn out tragedy.

The market is always telling me that it has changed and it is a reformed character.

“We don’t do stupid stuff any more”, it protests.

Well, here’s a great chance to prove it.

December 6, 2007

Victor Kiam Re

Dear friend,

Check out the Ironshore - Heritage bid situation. Actually I say 'bid', but there is no bid yet.

What a cracking story:

Leave a company just before its IPO, go to Bermuda, raise $1bn and shake the market up with your blinding aggression, make loads of money and then try and buy your old shop!

Bang - what a bolt of lightning! It's Les Rock through and through - bold, audacious and breathtaking.

It's just like the old Victor Kiam Remington microscreen shaver adverts

"I was so impressed I bought my old company!"

I hope they bought Les a nice leaving gift when he went, because if it wasn't up to scratch it may soon be payback time!

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