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June 11, 2008


Dear friend,

This is good - this is really good

Check out this story from the Miami Herald

If three years (and two clean seasons) after the event, the noble state of Florida is still trying to pay for Hurricane Wilma, how long would taxpayers be on the hook for a re-run in 2008?

Given the increased exposures to the State it is certifiably going to be higher than it was three years ago.

Yet more proof that in politics the 'pay later' approach is always preferred.

As Fred Flintstone would say:


June 9, 2008

Squashed by an elephant

Dear friend,

Talk about deja vu all over again.

Only on Friday was I reminiscing nostalgically about the pre-megabroker days gone by and then the Willis-HRH bombshell detonated.

We all knew Willis was limbering up for an acquisition of some sort, but the news that is is taking out HRH is pretty interesting, not least for the 150 employees of Glencairn, the London market broker it bought only last year.

I have personal experience of working in the relatively small London operations of an acquired broker when the acquirer has comparatively vast London operations. It's like being stepped on by an elephant.

The broker I worked for was taken over by Aon and out of that office only a single emloyee is still working for the acquirer.

I'm eternally grateful - I left to pursue a career in journalism and here I am today.

My advice to Glencairn employees (and that includes those in the Russian, South African and Australian offices) worried about their future is to keep working hard and run a tight ship.

Good people always do well, whatever the circumstances, (present company excepted).

June 6, 2008

Farewell to the brokers' broker

Dear friend,

I’m just putting the finishing touches to our June/July edition and so I suppose I don’t have much time to linger in front of my keyboard today

But why not linger? Let’s break the rules.

What’s the point of being an editor if you can’t do that? One more paragraph for the road, then.

This week saw an interesting milestone for me — the last of my former reinsurance broking employers was finally wiped off the face of the earth by the unstoppable juggernaut of consolidation.

Ten years after Aon took my first broking house off the market, Cooper Gay snapped up the remnants of Heath Re as part of a transfer of employees and business.

As the Heath employees packed up their rolodexes into plastic crates and moved a few hundred yards to their new home, so another ancient sub-section of my CV joined the ranks of the no longer verifiable.

With a frog in my throat and a tear in my eye I forwarded the news to an ex Heath Re colleague out in Spain, now more happily employed elsewhere.

The contents of his reply are unprintable, but suffice to say that he still bore the scars of the firm’s long-term retreat from global broking contender to a mainly retail UK operation.

So long, Heath Re, for so many years known in the market as the brokers’ broker.

And despite the risks, there is still no shortage of contenders making their play for stardom. Just look at the abovementioned Cooper Gay, and then HRH, Lockton and Colemont, all ploughing ahead with expansion.

In the spirit of fair play I wish them all good luck.

June 4, 2008

Super spin

Dear friend,

Here’s a quick post on the value of good public relations.

At 8:25am today the following email comes crashing across my inbox:

“Fitch Changes Outlook for Brit Insurance Limited to Negative; Affirms IFS at 'A+'"
Doesn’t look so hot for the old Benfield and Rea Investment Trust, does it? After all, no-one likes a negative outlook.

But every silver lining has a cloud, especially if you employ people to apply creative genius to the gossamer-thin strands that support our perception of the world.

Pretty soon they are weaving you a whole alternate reality.

And to a master of spin – this one was a no-brainer.

Twenty-three minutes later comes Brit’s version of events:

“Brit Insurance ratings confirmed by Fitch”

Runs the headline

It is only when you get inside that you are confronted with:

“Brit’s Insurer Financial Strength “A+” rating confirmed, on negative outlook

Spot the difference? (the bold is mine).

It (eventually) says the same thing, but it certainly brings a different perspective.

In this version the metaphorical bad news gorilla has been castrated and is now playing happily with the kids.

The old switcheroo has done it again.

The moral of the story? Always read the words, not the music.

PS Here’s how we summarised the news on our website

June 2, 2008

Dust off your Deely boppers

Dear friend,

When the computer screen is flashing blankly and we are in periodic need of psychological reinvigoration, we stand up from our desk and walk over to our window overlooking a busy street corner.

We poke our head outside and watch the world go by.

What do we see?

Here in London’s Soho, we mostly see impossibly young people scurrying about clad in ultra skinny jeans that very sportingly reveal the owner’s preference in intimate undergarments.

Canvas sneakers and flat-soled pumps seem de rigueur too.

Hair is almost universally of a style that is indescribably strange.

The boys sport bizarre mutton-chop sideburns with freakish mandarin lateral fronds that protrude below the chin. But the hair is short on top, unfortunately making the wearer seem as if recently released from one of Her Majesty’s institutions.

Girls parade short bobs with occasional flashes of improbable pink or skunk-like bleached stripes. They wear short dresses over the ubiquitous tight jeans — but still somehow manage to look more like boys than the boys do.

Many sport garish fluorescently decorated tee shirts — very 1982. In fact the ensemble effect on the street scene is that of a four-year fashion car wreck that begins in 1979 and ends some time in 1983.

Having lost any ambition to walk around looking like the lead singer in a Ramones tribute band over twenty years ago, I resign myself not to fit in.

The weird thing is that these people give me funny looks!

But I am a reinsurance man, a stout purveyor of financial integrity, of certainty in an uncertain world, and that makes me above fashion, doesn’t it?

I’m not so sure. Everyone needs to feel that they belong, and that they fit in, and reinsurers are no different.

Even our conservative marketplace is prone to its fair share of fashion disasters, be they sub-prime investments, quasi-banking ‘finance’ products, whole account retro or just plain old suicidal pricing.

Such fads are the kaftans, Deely boppers, leg warmers and stack-heeled platform shoes of their day.

One wonders if the reality check of the credit crisis hadn’t intervened, how long it would have been before someone set themselves up as a ‘synthetic’ reinsurer, shuffling and packaging risk around the globe. (Hang on, didn’t one or two already try that one?)

With the benefit of twenty years’ hindsight (and the sobering effect legal bills) we can all look back cringingly at ourselves in our fashionable youth and wonder what on earth we thought we were doing.

Then we notice that it is raining, we are getting wet and decide that it is time for the news.

And speaking of news, our new reporter Alex Ferguson has been breaking lots of exclusive stories this week so don't forget to sign up to Reinsurance Magazine's Free ad-hoc breaking news emails

(But be warned - it's a really strange page - you have to scroll down a bit to find the reinsurance tick boxes in amongst our other insurance magazines - don't ask why!)

June 27, 2008

Running off with the milkman

Dear friend,

What a wonderful world we still live in — some see opportunities, when others only see gloom.

Energy insurer Torus has announced its impending launch in London this week, with a $720m fanfare. Maybe would argue with the timing, but no-one can fail to be impressed by the scale or boldness of the move.

In a world of increasingly dull ‘black box’ trading in so many sectors, it’s nice to see that it still takes two views too make a market.

And when exactly is the best time to start up anyway?

Received wisdom dictates that it comes after a major loss, when the market is mis-pricing true risk — and this is what has happened in practice in the waves of ’86, ’93 and ’01 and ’05.

But whenever studies have been done on this subject, it has been shown that as long as you are adequately capitalised, and (crucially), you can attract the right calibre of people, it makes not a blind bit of difference when you start out.

It ain’t when or where you start, it’s where you finish that counts.

And here’s a quick (unrelated) thought inspired by Axis’s appointment of a Benfield man to the post of chief risk officer.

Brokers never really mind when their staff are poached by insurers or reinsurers.

Well, I suppose bang the boardroom table once or twice when they first find out, but then they realise they can’t really complain and then they eventually think about the potential benefits and come round to the idea.

Relationships always come first, and if handled well, such moves are usually a brilliant way of deepening that relationship.

It’s always nice to have some old friends embedded in strategically useful places.

When the time comes to dish out the reinsurance orders, such little advantages can make all the difference between hitting budget and languishing out in the cold.

I suppose it’s a bit like your wife running off with the milkman, you might be angry at first – but think of the free yoghurt and all that extra cream!

June 25, 2008

Hats off for British bureaucracy

Dear friend,

Here's a little thought about that $720m Torus start-up:

Is this the first time that a new company has gained a licence from both the BMA and the UK's FSA simultaneously?

After the class of 2005 saw the third great wave of start-up capital flood to Bermuda, the FSA was inspired to say it was trying to slim down and speed up its regulatory approval process.

Well this looks like the first fruits of that strategy - and 26 new jobs created in London are the result.

So it's hats off to the FSA for coming up with the goods - this kind of thing is so much easier said than done.

And another quick, slightly mischievous thought on this

- is the London company market's gain Lloyd's loss this time around?

After all, Torus backers First Reserve already had one little toe dipped into the Lloyd's market with their CV Starr 1919 Sideris Re sidecar syndicate?

We feel confident we'll find the answers, dear reader...

June 20, 2008

A lot of gossip

Dear friend,

It’s got to be short and sweet today because I’ve had one of those weeks when my feet never seem to have hit the ground.

And I thought June was supposed to be quiet.

If the alleyways around London’s insurance district are anything to go by, there is an extraordinary amount of deal making and scheming going on — hats off to you all, you busy, busy people.

Here are a few snippets of what I have picked up on my travels — mostly bad news, I’m afraid.

Don’t quote me on this but apparently the Universal Studios fire loss, which was initially played down, is now coming in (the full claim, not the settlement) for a whopping $440m.

Time to get out the underwriting presentation on that one, guys – what was the PML supposed to be anyway?

You would have thought that a studio with lots of different separate stages would be a pretty good write – but it seems maybe not.

Just how much is a papier maché Godzilla supposed to be worth anyway?

Then the oil and gas guys have had a nice little tickle from Apache Energy in Western Australia with a fire at Varanus Island — we believe this is going partly into OIL in Bermuda and some into the open market.

Again don’t quote us because we haven’t had time to check with the OIL people or anyone else for that matter.

But listen to these words from the Apache website from Apache Energy Managing Director Tim Wall:

"Some of the materials required to restore the facility are not off-the-shelf items."

Ouch – every claims manager’s least favourite words. It’s going to be a couple of months before they reconnect, says Tim..

That’s not all — Cargill has a maize syrup plant underwater in Cedar Rapids, Iowa.

And Germany, who have had at least one prize indemnity policy taken out on them (sum insured tba because I don’t know yet) to win the Euro 2008 soccer tournament, have advanced to the semi-finals, easing out one of the pre-tournament favourites, Portugal yesterday.

Oh, and the Mississippi may or may not be breaching levees as I write this!

Not much fun for crop insurers, or anything else in its way.

You want attrition, you got it.

But maybe, just maybe, that BHP Billiton loss may not be so bad after all. (I need a lot more detail on this one, though)

And one more thing — another top ten reinsurance broker has just obtained approval and to undertake Capital Markets business, but I can’t tell you who it is!

What a lot of gossip — what fun!

Have a great weekend

June 16, 2008

The Curse of Reinsurance magazine - II

Dear friend,

As the the curse of reinsurance magazine strikes again and the Sullivan-AIG aftershocks reverberate around the market, here is Alex Ferguson with a personal reflection after interviewing the great man only a few weeks ago:

Now that Martin Sullivan’s left AIG, I’ve been thinking about what it was like actually meeting the man in his plush office in New York City.

Although I’d never want to be seen dancing on the still-smoking grave of one of Britain’s biggest business figures, it’ll still nice to think that Reinsurance was perhaps the last magazine to interview Sullivan before he was ousted from the post this weekend.

It’s funny, because despite the monstrous problems going on around him, which ranged from $23bn of subprime writedowns to a very public war with former AIG architect Hank Greenberg, Sullivan was fresh-faced and remarkably chipper.

He enjoyed seeing Manchester United winning the Champions League – nothing like knowing that 200 million people were watching the AIG logo for nearly three hours eh? He was as proud of a picture of him holding a Super Bowl ring with Pittsburgh Steelers star Jerome Bettis.

What really got me in the interview – (which you’ll be able to read in this month’s copy of our magazine) – was that Sullivan seemed so determined to still be at the helm when the big ship called AIG finally turned around.

Unfortunately, his board had other ideas...

June 13, 2008

If you can't spot the naive capacity, leave

Dear friend,

Over lunch the other day I was quizzing a top-rank international property broker about the state of the market and he said it was soft, but not as soft as it had been at the bottom of other soft markets.

I was a bit surprised and asked why.

With that he sighed “There just doesn’t seem to be any naïve capacity around for us to exploit this time” and ruefully sipped a little more wine, lamenting the missed opportunity to help the old pros leverage their books (and boost his brokerage account) at the expense of the amateurs.

What a shocker! I almost spluttered a mouthful of coffee out of my nose in surprise.

Surely it couldn’t be? Where’s the fun in that?

A soft market with no chumps is like a wedding without alcohol – you’re flattered to be invited but as soon as you’ve stayed long enough for a departure not to cause offence, you make your excuses and leave.

Last time we Londoners had all sorts of newcomers who wanted to come and be our friends, and that was just fine and dandy.

Last time we all knew markets that were taking on risks that they simply did not understand. It seems inconceivable that now we are all going straight.

So maybe it's just that this time the chumps are elsewhere – maybe we’re just not looking hard enough?

But my lunch companion knew his market like the back of his hand and had no reason to lie.

So if there really are no chumps this time, then how about this here’s a seditious thought?

This time around we’re all the chumps, all using the same pricing, ERM, aggregation and Cat models and all buying the same protections.

I short all doing the same things in the same ‘disciplined’ way but in reality all cruising blindly and blissfully towards the next disaster?

In poker they always say that if you can’t spot the loser at the table, then you should get out quick because the loser is you.

Maybe this time we’re all collectively forgetting something?

Maybe this time we’re all the chumps and this game is made for losers.

Maybe the smart guys just aren't playing at all.

Mark Geoghegan.

PS. For the superstitious among you looking anxiously at today’s date of Friday 13th, I wrote this piece a couple of years ago.

PPS I did a couple more entries this week - have a rummage around for them on the site

Editor's blog, photo of Mark Geoghegan

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