Life is a funny business, and so is property/casualty.
Following Hurricanes Katrina, Rita and Wilma last year, Bermuda, my island home, was the recipient of some $20 billion of new capital in a three-month period. Some of the new billions replaced billions lost by existing companies, and some of them jangled in the war chests of a dozen new companies.
This is easily the most exciting development in the global insurance sector in four years. By dollar volume, it's one of the most exciting things in any sector in that time. And yet . . . we are witnessing a drama that we have seen played before, and before that. All these new Bermudians, and many of the old, promise, overtly or otherwise, a new paradigm of some sort. All would vow not to repeat the mistakes of earlier generations, if you cared to ask them. Their capital clean, and their underwriting principled, their goals (in one or two cases) seem somehow loftier than mere capital gain.
To a man and a woman, these Jeffrey-come-latelies who sing the siren song of October mean to innovate and to change the shape of insurance, but surely they are condemned to act out their lives according to the iron dictates of the cycle.
We all know the tune. Catastrophe beyond our ability to comprehend, and in some cases forecast. Disruption in the economic markets. Glee among the mullahs and, if the event is in the United States, at the BBC. Secret meetings of the powerful, sequestered in steel structures; their talk of hard markets and possibilities. The buzz of anticipation to the accompaniment of horrible earnings statements, recording the costs of the catastrophes that set this all in motion, costs the companies know will climb in the quarters ahead.
Then, with trumpets muted, the new capital rides in, as the cavalry once did. New faces on the streets and in the wine bars; new wine bars, for that matter. This stunning display of that much money at work should all be so invigorating, and yet it is all so . . . terribly déjà vu, darling.
Tell me I'm wrong. Tell me that the endless promises of underwriting discipline and new investment strategies actually presage something new. Tell me that some of the same guys, wearing different colors, are not going to commit the same mistakes. The excitement we all felt when the post-9/11 capital was being unfurled, that sense that here indeed was a new understanding of risk in a new age of insurance--tell me that is once more upon us.
Then tell me you love me. I'll believe anything.
Don't get me wrong. My ability to demonstrate ennui that another $20 billion has arrived--ka-CHING!--should make it very plain that no industry is as exciting as property catastrophe reinsurance. What other business is as important to the very functioning of society, yet can wipe out half its capital overnight? None! No other industry, having demonstrated with such singular expertise its ability to rely on models that no one trusts, dare step up to the plate and, like Oliver Twist, ask for (and receive) $20 billion more, for the second time in four years. No other industry so routinely fails to destroy its gods and replace them with new ones.
In the overarching story of human experience, we are but insignificant cogs on tiny wheels. Yet in many ways, insurance and reinsurance are the most important wheels of the whole blamed mechanism, the rolling stock upon which all our dreams are constructed. Prop cat, I would argue, is the Belly of the Beast, and though I may tire of its repetitions, there is nowhere else in the economic machinery into which I would rather be plugged.
is a regular columnist for
Risk & Insurance®. He also covers issues on alternative risk for this magazine.
March 1, 2006
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