Baden-Baden 2018 Day 1

Why do the longest-established reinsurance gatherings so often take place in towns that are famous for their casinos?

After all, everyone knows casinos are places where fools are very efficiently parted from their money.

The risk is priced wrongly. The payouts you get are too small, so the longer you stay, the more you lose.

Yes, clever folks with outsized memories and wonderful powers of concentration can move the odds in their favour if they can count cards in Blackjack, but let’s face it – that is a top percentile occupation that only a Jain or a Buffett can pull off.

And you can only play for small stakes before the casino managers get very suspicious.

You can hardly win big enough to make it worth your while for your own account as a lifestyle business, let alone keep investors on board.

The best casino strategy is to cash in your chips and head for the exit. After all, the only way of avoiding being the chump in the room is not to be in the room at all.

But reinsurance is not supposed to be like being a punter in a casino.

Reinsurance should be a game where the risks and rewards are in better balance. You are supposed to get paid something for taking the risk away on somebody’s behalf. You take a 1 percent risk and get 50 cents extra for your troubles.

You’re doing a valuable service and are smoothing your customer’s earnings, plus maintaining a large and pristine stack of capital for when a series of unfortunate events strikes is not a cheap business.

And because of your global vantage point, you also impart valuable insights – you know lots of useful stuff about risk and are a handy person to have around as a partner/free consultant.

If truth be told, your best and most loyal customers don’t really want cheap. They want seriously dependable and reliable quality at value-for-money prices.

But there are times when our game just isn’t well paid enough to be worth all the work that goes into it. And then there is all the potential downside from remote but ever-present risk and all the unknown and unknowable risks you are also almost certainly running.

Once your environment starts looking like a casino, you know you should leave.

The smart money knows when to walk. Is now that time?

When prospective returns don’t exceed your cost of capital and prices aren’t budging, you know you should shut up shop.

Lots of activist investors seem to think

so, or at least they think that any remaining specialist reinsurers should sell while

they can still get reasonable premium

prices for their seats at the reinsurance table.

But the most honest answer to the big question lies in whether you have sufficient grounds for optimism that over the cycle the good pricing will exceed the bad by enough to make it worth your and your investors’ whiles.

In the cold, autumnal light of today, it is becoming harder to answer that question positively with any conviction.

The problem is that the lifestyle is addictive. It’s a rush, and over time business and pleasure have merged.

The basic pay is good and when you win, the rewards are even better.

And if you write mostly cat you should win nine years out of 10 anyway.

Plus what else are you good for? You’re too old to retrain and too young to retire.

Hope may not be a strategy but sometimes it’s all that is left for us.

No wonder we do our conventions in casino towns.

To view the first of our special issues from the 2018 Baden-Baden meeting, please click here.