Dear friend,

I was down at the Gherkin earlier in the week along with the rest of the world’s press to hear what the brains at the world’s number one reinsurer had to say about the renewal season, amongst quite a few other things.

(In case you didn’t know the Gherkin is the informal name Londoners have christened Swiss Re’s iconic cigar-shaped glass and steel skyscraper in the capital in the insurance district. I think even Swiss Re has given up trying to call it by its real name of ‘30, St Mary Axe’!)

I never need much of an excuse to get down there and gawp out of the window at the incredible view, and knowing I was going to be hearing Swiss Re’s predictions for global supply and demand for insurance in 2007, I made time in my diary to attend.

The man charged with looking into the financial crystal ball is Thomas Hess, Swiss Re’s chief economist. Mr Hess is a jovial and friendly character, who always has a smile on his face — I suppose he’s what you might describe as a natural optimist.

He’s been a guest on our Monte Carlo roundtables for the past couple of years and he is very good company indeed — Thomas consider yourself duly invited for 2007! Incidentally, Thomas Hess is also the main editor of the Swiss Re’s highly-regarded Sigma reports.

On to the point — Thomas gave a great presentation, with all the big numbers and trends — impressive graphs and slides illustrated the talk as the story of reinsurance results to date was described with élan.

Then we came to the supply and demand outlook for 2007, and it got slightly lower-tech.

Here’s the back-of-an-envelope prediction:

Demand up 6% — supply up 6%. A creditable score draw! A perfect balancing act.

Here’s the breakdown.

DEMAND:
Exposures +4%,
Higher capital requirements due to model tweaks +1%,
Higher asset exposure +1%.
EQUALS +6%

SUPPLY:
Profits +10%
New Bermuda money +1%
Dividends -2%
Equity buybacks -1%
Acquisitions financed out of own funds -2%
EQUALS +6%

I think I’ll leave it at that.

Except to remind you that if the best that the most optimistic person I know can predict for next year is a balanced market, then what hope is there for us pessimists?

CONCLUSION:
Look out below! This renewal market is going squidgy