The Intelligent Quarterly from the publishers of The Insurance Insider

Spring 2012

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Dear friend,

What do we in the global (re)insurance world really know about anything?

Well, we do know that in order to reap the rewards of an extraordinary 2009, we had to survive the unpleasant travails of a disaster-laden 2008.

A year ago we knew we had to be in it to win it - and happily, barring the odd credit, political risk and financial institution boil-over, by and large we did win, and win convincingly.

But precisely what battles should we pick if we want to win today's wars? And how hard should we be fighting them?

Sadly the easy wins have all been taken and held. After years of good times and empire-building the initial spear-carrying hordes who surrender at the first sight of a horse or the magical sound of exploding gunpowder have all been conquered. All that's left today are well-drilled machine gun and heavy artillery-wielding units that have dug in deep for a long fight.

Today even the last hard bits of this market have gone soft and the bits that were soft before are now positively runny. There might be the occasional reasonable-margin tuck away for the rest of this year, but the outlook for 2011 is starting to looking ugly across the board.

Demand continues to sink or at best stagnate and everywhere managers are digging out their slide rules, analysing claims data and reserve release projections and trying to put their finger on the elusive moving target of where today's walk-away price really lies.

"Everywhere managers are digging out their slide rules, analysing claims data and reserve release projections and trying to put their finger on the elusive moving target of where today's walk-away price really lies"

Of course walk away pricing is usually only a subjective measure of the relative optimism of the beholder. One man's meat is another man's poison.

With some accident years starting to look less than healthy we may also not have might not have too long to wait for a tide of red ink to start lapping around our heels.

So what's the solution?

We could always give up and go and work for Munich Re if they will have us (I would have added Swiss Re here but I do not think they are hiring these days).

Or we can merge and/or return capital and hunker down for a long cold campaign on the eastern front. It might be a logical way to ride out a storm but since when does everybody behave logically?

In the less rational human world, a potent blend of impatient ambition and greed often crowds out cold, dull logic. The greedy and impatiently ambitious just do not find the thrills they seek in a large corporate like Munich Re, however well run a firm it might be.

By their fundamental nature underwriters have to be optimistic souls - and let's face it, if they weren't they would never underwrite anything.

Leaving the cynicism to world-weary brokers and old lags, this market is made for ambitious young underwriters who have not yet lived all the way through the dizzying highs and the painful crunching lows of a full market cycle.

Don't tell this generation that they have to hunker down with no prospect of a bonus for the next three to five years - they've just taken out a vast mortgage on their dream home and are eyeing up the yacht brochures.

And what is most infuriating for the old hands, whilst many will blow up if their managers let them, some of these young hot heads will rush out, storm the machine gun nests against the odds and confound their critics.

Only then, newly vindicated, commissioned, decorated and supremely confident in their own abilities will they finally be given the chance to be their own boss and become the architects their first truly spectacular career blow up.

The first blow ups are always the best, don't you think?
From one old lag to another - tin hats on chaps.

Mark Geoghegan, Editor