Insight and Intelligence on the London & International Insurance Markets

24 November 2017

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Where are the warts?

Mark Geoghegan 14 November 2017

What an industry we have the privilege to write about!

Put in $80bn-$100bn of catastrophe losses and it barely flinches.

It doesn't bat an eyelid, gets its chequebook out and asks the broker who he wants it made out to. Hey, why not just cash?

Even then, it is still flush and is able to make a donation to the rainy day fund without affecting its credit rating.

It is like the cartoon character who is beaten over the head with a baseball bat, but instead of its skull quickly sprouting a comedic vertical lump, the blow rebounds onto its assailant's nose, provoking a predictable Pinocchio-like reaction.

Not only that, but with the Q3 tallying all but over, there are no obvious outliers.

In major loss scenarios past we always had public companies we could easily identify and put in the stocks to be pelted with rotten fruit.

This time it is completely different. No one seems to have any egg, or anything else, on their face.

And all this despite the fact that two of the three big cats were superbly unforeseeable losses that weren't from the standard reinsurance playbook.

Such events are usually a recipe for a modicum of chaos and uncertainty, at least at the margins.

Yet this year everyone is producing loss picks that offer a procession of staid respectability. Even previous rogues and outliers seem to have published numbers that are broadly in line with what they told us to expect.

What lucky customers we have.

We have done exactly what we said we were going to do and they can look forward to the upcoming renewals without nervously eyeing their reinsurance recoverable balances or gaping holes in their programme structures caused by market withdrawals, impairments or worse.

If only this didn't all feel so fake. Everything is too perfect.

It's like a plastic children's dressing-up doll - such an artful amalgam of the idea of beauty that it in fact fails to be anything but beautiful.

And if everything is so perfect why should prices rise?

If I got a plumber round my house to do a job and he quoted a price for that job, then did the job in exactly the way I expected it, I would be pretty annoyed with him if he then came and asked for more money.

Surely this perfect world must see the market cycle banished? We charged the right price and we had a loss. We will get paid back in time. We can't now charge more without treating customers unfairly.

Some of our clients may look at their renewal quotes and happily take an end to pricing declines and perhaps a modest increase that only brings them back to 2015 or 2016 rates.

They may figure it a price worth paying for a quiet life and the improved relationship this will bring them with their long-term reinsurance partners.

But others may find a little more aggression proves successful.

There are still too many markets and they all still want to write good business.

The only way this perfect scenario is going to be shattered is if some ugliness can be found.

Warts and acne need to break out on the perfect visage of this plastic-doll market.

But despite the usual scurrilous finger-pointing at those that have aggressively won market share in the past years, we're still not coming up with much in the way of scapegoats for a properly hardening reinsurance market.

But our gut still tells us that nature will take its course in the coming quarters...

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This article was published as part of issue November 2017/2

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