Dear Friend,

I live in an apartment block in central London — there are ten apartments in all and we buy a shared buildings insurance policy.

Not all the apartments are the same size, so we have a system whereby the common expenditure is split by different percentages, according to the portion of the overall floor areas that we occupy. In fact we use these percentages to split all our common expenditure.

Naturally, since everyone in the building knows that I’m the guy who used to work in insurance, I tend to be the one entrusted with the annual renewal negotiations.

And because I also own one of the biggest apartments, so pay a much higher percentage of the final premium, everyone knows that I have the most to gain from demanding the best deal for brokers and will be looking out for their interests along the way.

To tell the truth, whilst publicly moaning about this burden to my neighbours, I secretly enjoy my annual foray back into the world of insurance broking.

Anyway — it’s renewal season again and as I was collating the claims history and checking, terrorism write-backs, sums insured and sub-limits for garden equipment, it occurred to me that my communal insurance arrangements bear some similarities to what Lloyd’s is proposing with the Thunderbird Re cat bond vehicle that it is proposing for the 2007 year.

My own experience with my household insurance is that a degree of commonality, whilst entailing certain administrative complications (in this case, for yours truly), does provide greater peace of mind than when everyone acts entirely for their own account.

What the Lloyd’s authorities are proposing will entail quite a lot of preparation work, but will provide a tangible benefit for members, especially the smaller ones, but possibly for some of the bigger ones too.

At present one of the biggest problems with Cat bonds from the financial market investors point of view is that most issues are so small that the bonds are highly illiquid and not easy to trade — and consequently it is hard to make a meaningful investment in them.

Lloyd’s proposals have got me thinking — if Lloyd’s can do it (and a pool of small European mutuals have already done it) why doesn’t the whole reinsurance industry pull together and issue a series of mega-cat bonds?

Now they really would be a handy tool – investors would able to make market in them with confidence and the bonds would be more keenly priced.

Participant (re)insurers would be able to trade participations between each other to match exposures and the bonds might even become ‘optionable’, allowing (re)insurers to lay off risk or lock in earnings with a minimum of capital outlay.

Let’s call this vehicle Everything and Anyone Re — why leave direct and varied access to the capital markets as the exclusive preserve of the giants of the industry?

Anyone feel like starting the ball rolling?

Let’s all talk about this at Monte Carlo!