Back in September as Florence barrelled towards the Carolinas, I wrote about the Sisyphean task that reinsurers were facing.
They were likely to have another year’s earnings wiped out, but were not going to get a ratings spike for their troubles.
Just like the poor old Sisyphus of Greek mythology, reinsurers would be condemned in perpetuity to roll the rating ball up the hill, only to see the gravity of capital push it back down to the bottom.
The solid floor at which the ratings ball would eventually come to rest would be set by reliable modelled pricing. These days no-one can knowingly deploy capital at below expected returns and expect their investors to back them for long.
Today the only way of convincing investors to do this would be if there were some fabulous strategic game plan that made it all worthwhile.
But reinsurance is not a winner-takes-all technology business where loss-making land grabs might make economic sense in the long run. It is a mature sector with low barriers to entry, so this is a failing strategy.
The Sisyphus of myth is the eternal optimist. He spends eternity believing that the impossible is achievable with one last heave.
If I were him I would have gone on strike years ago, curled up under the shelter of the ball at the bottom of the hill and told the gods to pick on someone their own size. But poor old Sis just keeps on rolling.
But it looks like in 2019 he has finally got the message.
The dismal failure of the Catco gambit following the HIM (hurricanes Harvey, Irma and Maria) losses of 2017 represent the end of his absurd irrationality. Catco was the last true Sisyphus and its failure has been tragic in mythical proportions.
These days the best reinsurers are cagey. They know when the ball is in a good place. But when it is, they keep quiet and try to make it stay there long enough to produce some returns. They try and chock it up to stop it falling back down.
The last thing they do is get greedy or start making silly promises about mythical and illusory outsized prizes, lest gold-rush capital come and ruin everything.
This year’s Sisyphus has a model and he knows how to use it. So too do his investors.
Indeed, as long as this new certainty holds, the ratings hill is going to flatten considerably. Until events call the models into question this hill is going to be more like a divot or a rut.
And as long as the rut produces returns the investor can be happy with, the equilibrium will persist.
Sisyphus is still stuck, but he will be stuck in a less volatile, more hospitable place.