from the publisher of reinsurance and fac magazines

« The market speaks | « Main | Cold sweat and delirium »

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

Comments (1)

Josie Andersen:

Dear Mark,
I really think you have to distinguish here...
Yes, the direct market is softening - especially on large prestige Industrial accounts. Yes, there is some softening on Reinsurance Per Risk Treaties - but no more than 15%, Cat Treaties are down max 10% in non peak areas but definetly not for Wind in Benelux, France & Germany. In this area prices are up by 15% and lots or reinsurers have run out of Wind aggs. I expect some late renewals will experience shortfalls at Jan 1st. Ask Belgian reinsurance brokers whether they have completed their Cat XL orders...

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!"
Mark Geoghegan