When change comes, one of the biggest debates is whether it is cyclical and therefore prone to being reversed at some point, or whether it is secular and part of something solid and permanent.
With so much change in the air the horns of many such dilemmas are currently poking directly, and rather painfully, into the ribs of the market.
One of the most pressing debates is whether the hedge fund sidecar phenomenon will stay with us forever or whether it is something that will come and go depending on the state of the markets.
Yesterday's scoop that XL was looking to join the hedgie party and put together an in-house reinsurance vehicle with Oaktree is the latest manifestation of this trend. It was hardly a surprise - why wouldn't a cedant look to do this in the current market? With the Catlin merger completed, XL Group has an attractive book of well-diversified business that it will attempt to leverage.
And why shouldn't it? If a cedant has spent a lot of time and effort constructing a portfolio of profitable risks, it has a duty to its shareholders to make sure it is doing everything in its power to maximise the revenue that this portfolio can produce.
The question is whether this is merely an opportunistic play that will be reversed when conditions change or whether such constructions will become a permanent capital support to the cedant.
The first part of the three-part answer to the question is that it depends on how equitable the partnership ends up being.
If it is too punitive on the profit commissions for the capital backers, they will start to burn. People don't like losing money and will pay to get out of trading relationships that are unfavourable. But if it is too generous to investors it will prove of little interest to the cedant and will be unceremoniously dropped.
The second part is that such constructions work well while the going is good, but have no way of remedying losing situations. The vehicle has very little control over what goes in and cannot re-underwrite if things go wrong.
It's a bit like being a diner in a pop-up restaurant where there is no menu. The place is billed as somewhere to sample home cooking according to the chef's taste. The customer either likes what is coming out of the kitchen and wolfs it down, or he doesn't. As there is no menu he can't re-order if the meal is not to his liking - he has to either like it or go and find somewhere else to eat.
There's one final part - imagine that this restaurant is next to the bookmakers and the diner is in and out because he likes a bit of a flutter. One day when the bill comes he goes for his wallet and finds it is a little lighter than he thought. He realises with a shudder that he is going to come up short. He certainly won't be invited back.
No, this change is not secular - it is far too opportunistic for that - and there are too many things that can go wrong.
Right now, trendy boutique dining is the order of the day. I'll wager that it won't always be, and that à la carte will one day experience a renaissance.
To read the third of our Monte Carlo dailies, please click here
Bon appetit!
Mark Geoghegan,
Editor-in-Chief,
The Insurance Insider