Dear friend,

Markets are perverse, aren’t they?

Take this Benfield rumour — a reporter gets spun a line about how Goldman Sachs failed to make a bid for Benfield because it couldn’t raise the cash and the shares go up 10%.

Why? Because there might be a bidding war!

Well, get a load of this phoney bidding war — one with no bids in it!

Poor old Goldmans – if they couldn’t afford to knock out Benfield when it was at 270p, how will they take it out now the leaked rumour has propelled its price higher?

Meantime everyone misses the really interesting story — that over the last few days those Buffett-like value investors at Harris Associates snuck up on the market and snapped up a 6% stake in Benfield while everybody else was selling!

What are we to make of this?

Clearly lots of people see some very deep value in Benfield at around its current share price. And why shouldn’t they? It’s a generally lean and happy ship with critical mass in key areas and is run by great people who are about as high up the food chain as you can get in this business.

The recent interim results showed the firm gaining market share — but getting caned by the dollar’s weakness. Benfield was doing pretty much everything right, but the currency market wasn’t playing ball.

Value investors like Harris Associates are smart people — they know that sooner or later everything reverts to the mean. The UK pound is riding high against the dollar — no-one really knows why — our twin deficits and levels of personal debt are just as bad, if not worse than the US — and wait till you see our fantasy island housing market…

When a run on sterling starts, the market freezes and you just can’t get rid of the wretched pieces of paper with old Elizabeth II on the back fast enough — sterling is just not much use as a reserve currency any more — the nineteenth century is long gone.

So the message should be — stop worrying and be patient (or never buy UK-quoted brokers with dollar interests unless you are ready for a bit of volatility).

There’s little value in Marsh, Aon or Willis buying Benfield — staff would just leak away over the subsequent two years and low and behold, one (or a crafty combination) of JLT Re, Cooper Gay, Lockton or BMS would probably emerge as a major beneficiary and the new fourth mega-reinsurance broker on the block.

The market just needs a fourth player and that’s that.

Of course this is probably why it hasn’t happened, and why no bidding war exists or is likely to exist.

…But if I were one of these Asian or Middle Eastern sovereign funds with a few coins spare, then we really might be cooking with gas… Temasek come on down.

See how these rumours start? They begin as ideas, nothing more or less.

Use your brain and you’ll be fine. Nothing ever changes.

Dear friend

Do you know who’s active in the life settlements market?

If so please can you help out a reader from the Netherlands? There might even be some business in it for you if you do

My first guess would be go to someone like Swiss Re

(or maybe I might go to my friendliest soft market contingency broker to see what is cooking out on the wild frontiers – but I’d expect to be sent packing after all the viatical problems of the late 1990s!)

but then what do I know?

Here’s the query:

-------------------
Dear Mark,

I always read the newsfiles in my mail. As you can see this is a mail
from Holland.

Were into Life Settlements at the moment, and i'm looking for an
insurance company who's able to reinsure pay out the face value, when
expected LE of the Life Settlement is over.

Can you tell me which parties i should contact to get some information ?

You would be very kind !

DB Financials B.V.

Mark Snijders

[email protected] www.dbfinancials.com

-------------------

So don’t say I never do anything for you!

Reinsurance magazine and blog-re – so much more than a good read!

Speak soon.

Mark Geoghegan

Dear friend,

It’s amazing how uniform the pricing is amongst reinsurers right now. I keep hearing that in today’s new disciplined reinsurance market, that if you go out with a programme that is a little light on pricing, you struggle to get it placed.

But as soon as you nudge the pricing up into market range, everyone jumps all over it and you’re signing everyone down like there’s no tomorrow.

This is worrying — after Katrina the old orthodoxies were thrown away and we returned to a proper underwriters’ market where pricing was subjective and therefore varied wildly from shop to shop. It was a bit like Mad Max!

Now we’re finding that because all the capital models and ERM lines of reporting have been re-tweaked everyone suddenly agrees with everyone else and there’s only a tiny margin between what one player says over another. More General Hospital than Mad Max.

This must be frustrating for brokers — there’s nothing worse that a whole bunch of underwriters ganging up on you and agreeing on everything!

But the one thing I do know is that when everyone agrees on something it is usually wrong!

None of these new capital models or information-gathering systems has been tested in anger yet, so we still don’t know if they work any better than they did in 2005.

Run back through old copies of the magazine in early 2005 and you see what with hindsight was an extraordinarily complacent time. The market was saying “of course, we’re so much more sophisticated these days, the data quality is just chalk and cheese compared to what we used to get in the 1990s… blah, blah, blah.”

(Or should I say baa, baa, baa)

Did the world stop turning after 2005? No, of course not.

What we have now, at absolute best, is modelling that takes the world as it was in 2005 into account.

You can’t beat the market, but if you follow it blindly, you usually regret it. In its most extreme manifestation this reliance on models could metamorphose into a systemic and corrosive form of mass blindness, or even hysteria.

One of the reasons why those enormous computer-traded ‘Quant’ funds all started losing high percentages of their funds under management earlier in the summer was that they all used the same methodology. One day they all said “sell” simultaneously – and low and behold, there was no-one to sell to!

Prices plunged for no good reason and human traders waded in and took the computers to the cleaners.

The fun thing is that since demand is plummeting, capacity is abundant and the Quant jocks at the hedge funds are now offering proper insurance-style coverage with most of the nasty basis risk taken out, competition is intense and prices are going to fall below the point at which the computer says “no” rather emphatically.

I don’t believe that this cheery consensus can last — there is always someone who cracks and breaks ranks.

Back in the 1990s I remember an underwriter who really wanted to write me a line on a programme. He got out his curve and started crunching the numbers – but the pesky little curve just wasn’t co-operating. None of the layers seemed to do the business for him.

Eventually he seemed to give up, and wrote a decent line on the (cheap) top layer on which we had been struggling.

“How come you like the top layer so much?” I asked (I should really have shut up and ran away before he changed his mind).

“To be honest, I don’t really like it. But it’s the only place where I can bend my curve enough to be able to write you a line!”

I suppose curves are bent before you start, so what’s a little tickle here or there?

But it kind of puts ERM into a little perspective.

I sincerely hope we are all right this time, but I seriously doubt it.

Dear friend,

Another hectic Monte over and a flip though the old notebook may reveal a collage of collective wisdom.

Or on the other hand, it may not.

Let's have a little rundown of some of my particular favourites, adding in what my inner demon might respond to them all, if only he were brave enough:

"In this case, one plus one equalled two point two"
It's when one plus one equals four that you really need to worry!

"Lloyd's is at a peak of attractiveness"
Just like Tsa Tsa Gabor!

"We used to have to trust underwriters, now we can see what they are doing"
But now you can see what they are doing, can you trust yourselves?

"Why retain more in a soft market?"
Because it's better than placing it with a reinsurer who goes bust and stops paying.

"It's not a question of being liked or not"
Why does no-one like you?

"There is no direct market - only the broker market"
There are no modest brokers, full stop.

"We're going to double the size of the company"
..by trebling our wage bill!

"No company ever died from overstaffing"
But have you ever seen how much a claims broker can eat?

Normal service will be resumed next week!

Until then, have a good rest.

Dear Friend,

Bit of a quick one today as half the team has already left for the airport and I have been struggling all day with microphone cables and trying to learn new tricks with digital recording devices.

The champagne is chilled, the waiters at the Café de Paris are on their best behaviour and we’re on our way, searching for a small island of sanity in all the madness.

We need an eye in the Hurricane, from which to focus, observe, contemplate and then resist the temptation to get too drunk too quickly. We wonder where such an oasis is to be found, but we promise, dear long-suffering friend, that we will do our utmost to find it.

We optimistically hope we shall succeed, (but rather expect that we will once again fail to live up to lofty expectations).

We only hope we don’t embarrass ourselves too visibly in front of too many people.

See you later,

PS. Watch out for the glare from our white polo shirts as you stagger from meeting to meeting.

Dear friend

This amused me today

A global tech giant has launched a new Acord-based messaging system so that the London market can get into electronic data transfer.

I always remember interviewing a true-blue London executive who’d probably heard too much (and spent too much money for little reward) on tech babble in his time.

He said “until they show me something that is not just glorified email, then I’m not interested”

Well, two and a half years, many millions and one collapsed Kinnect later and let’s play spot the exciting new London market technology, shall we?

Here is an extract from the marketing literature:

“A key strength of the XXXX is that it offers insurers and brokers an extremely low cost and simple staged entry into electronic trading (through email) so that they can take advantage of many of the benefits of data transfer at the same time as their systems are being upgraded to handle full external connectivity.”

Did you see that? Email!

Okay it’s only transitional — and it should be cheap and probably get some of the smaller brokers coming out of their shells and weaned off paper.

Maybe it's what we need - to do something small to show the sceptics that tried and tested technology can be applied without costing the earth and taking forever to implement?

But it’s hardly Web 2.0 is it?

Dear friend,

What to pack for Monte Carlo? It’s the vexed question everyone is asking themselves as they prepare for the greatest show on reinsurance earth.

It’s all a little confusing — this world is a little topsy turvy. Everything is turned upon its head — I mean normally you wear a suit during the day and put on casual gear when you get home — not so in Monte.

Here everyone slums it in Ray-Bans, Chinos, and docksiders by day, like aging rock stars trying to go incognito, yet but night a mass pupation occurs and the day’s caterpillars emerge like a rampant flock of rare and beautiful butterflies.

Pausing only to dry their wings in Casino Square, they flit off into the night, dispersing to private functions and pre- and post-dinner drinks in a cloud of champagne bubbles and canapés.

Knowing what to bring and how to behave can be quite a challenge. What is a respectable reinsurer to do?

Well ladies, this season I have compiled a guide that will suit all styles, dress sizes and budgets:

Old continental reinsurers — this year, you’re going to have to hitch up your hemlines a notch or two, show a bit of leg and try something a little more risqué than you’re used to — it’s time to live a little.

If you don’t, someone more daring is likely to run off with all your usual dance partners and leave you a dull old maid, sitting out the foxtrot whilst gossiping with the other discarded flotsam and jetsam. And that won’t be much fun, will it?

Necklines will be plunging too, so cleavage should be readied for display. Dig out a few diamonds and liven up that old frock by sewing a few sequins in here or there. But don’t go overboard, keep it fairly classical and just a trifle understated.

That’s the old birds sorted out, now for the Bermudians — let me break you down by class:

Any class pre-2001 — you know the score – you’ve been here before. Start with the footwear — you want to be smart, but sensible — leave the high heels for the start-ups. You’ve already made a splash, so you don’t have to overdo it — there’s no need for ostentation.

I’d keep a beady eye out for rogues, promising riches if you let them run your Zurich or London offices. Pack a can of mace in your handbag, just in case they don’t get the message.

Start-ups and debutantes — don’t overdo it — it’s a marathon, not a sprint. Wear what you’re comfortable in. You’re young and impulsive, so don’t go making a fool of yourself.

I don’t expect you to heed my advice, but don’t expect any sympathy at 2am after the big Aon party telling me that your high heels are killing you and you don’t think you can make it back up the hill to the Casino! Oh, and bring some Alka Seltzer.

Now for the ladies from Lloyd’s — I’d go for something provocative — get all the boys hot under the collar on the first night and then spend the rest of the week playing hard to get.

But don’t forget to get formally paired off with someone before you leave and make sure they visit the jewellers and hand over a big rock — this may be your last chance to bag a top-dollar beau before the easy money runs out.

And brokers, bring a brolly — if it rains you’ll want to be chivalrous and lend it to your best market and/or best customer! Actually I feel sorry for you this year — you’re going to have you work cut out, hanging on to your best accounts as they come under relentless soft market attack, and your best staff will be wooed by the opposition.

Still, look on the bright side, maybe the dollar will strengthen in 2008 and help mask your inevitable sliding brokerage?

And do remember to try and have fun — I look forward to meeting you all once again