Is it really "different this time"?

Dear friend,

First, I'll have to level with you: I'm a bit of a pessimist - I always think I can see trouble ahead; I'm a 'glass half-empty' kind of guy. And why not? After all, I used to be a broker.

I've been around the block a few times, I'm not wet behind the ears - I suppose I'm a bit of cynic. Not that I'm unhappy in my lot, it's just that I don't think there is anything new under the sun, and that this adage holds true in all aspects of life, the reinsurance market included.

In fact, let's face it, especially the reinsurance market.

I like to think I see eternal optimists for what they are - dangerous delusional fantasists, who you certainly wouldn't want driving your kids to school.

"This time it's different" is the optimists' rallying cry. That's always been their slogan - not that it's ever done them any good.

In 1994 and 1995, the 'hardest market in living memory' was coming to an abrupt end. "This time it's different," came the riposte. "We've got sophisticated ways of controlling our aggregates, swanky new technical rating models and anyway, cat bonds are going to smooth the cycle."

The 'hardest market in living memory' was duly followed by 'the softest market in living memory' and the rest is history.

As the results season comes to an end, I cannot count the number of corporate statements that say: "This time it's different. This time we can't rely on investment results to subsidise underwriting losses. This time our modelling is so much more sophisticated. This time we've got the franchise board to stop underwriters doing silly things. This time we'll hold our discipline. This time capital flows in and out so much quicker than before".

To listen to this, one would have thought that the world had somehow become perfect, and tragedy, conflict, death and disease had been abolished along with all human frailty and the seven deadly sins. So, all of a sudden, our heads will always rule our hearts and we will always do the right thing?

Markets are ruled by fear and greed, and insurance markets are no exception.

"You only know you're in a soft market when you lose your best account out of absolutely nowhere," a wise old underwriter once confided in me "But once you know you're in a soft market, you make damn sure you defend what you've got". Out of a bright blue sky comes a thunderbolt and everyone's world is turned upside down in an instant.

Losing a prize account is a frightening experience, and scared underwriters act to protect themselves. The next big renewal that comes up, they make sure their terms are bang on the money.

A soft market always feeds on itself. The greed of the hungry new market entrant, or the pride of an 'invincible' underwriter drives the fear of the incumbents and the result is always ditched pricing models and lower prices.

This soft market will only begin to bite when all market participants start entering negotiations knowing that they are in a soft market - and that hasn't quite happened yet.

Yes, this time it is different - it's always slightly different.

But how can anybody tell me with any conviction that this time the end result is not going to be exactly the same?

Mark Geoghegan, editor.

PS: Why not join the debate? Email me at mark.geoghegan@incisivemedia.com or go to our website at www.reinsurancemagazine.com.

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