If you read this I will be somewhat surprised; for I have made hardly any postings to this website in the past 12 months.  The reason for this is simple.

My clients and I have either significantly reduce our risk profile at Lloyd’s or left Lloyd’s altogether.  After 2007, with the failure of AIG, I had hoped that insurance capital would have been damaged.  Thanks to the American taxpayer, AIG was totally bailed out.  It seems governments in the last 3 years have bailed out any major loss making entity (with the exception of Lehman).  This of course means that inefficient businesses can continue operating at below market price.  (In Australia we have recently seen enormous government subsidies being handed out to General Motors Holden to keep them operating; we then find out the trade union involved has negotiated substantial wage increases of up to 24% over 3 years without any requirement for productivity gains).  I thus formed the opinion that my capital can not complete with capital provided by governments.

(As an aside, I think that the situation the world is now in is worse than that of the 1930s.  The 1930s Depression was evidenced by very long dole queues in most countries.  We are currently in a Depression which is evidenced by the debasement of currency (remember “Helicopter” Ben Bernanke and others) and failed government finances.  It seems that the socialist European Union (and others such as the US of A and Australia) thinks that printing more money to hand out is a cure for the ills of today whereas it is merely adding more petrol on the flames.)

To get back to my point, even with the large losses in 2011, the surplus capital of reinsurers actually increased marginally.  As we all know, until capital is damaged, rates don’t really strengthen up.  Those insurers lucky enough to have capital available were able to significantly increase their underwriting following the problems in 1992 and again in 2002 because capital had been badly damaged and Directors of insurance entities were frightened and their exposure to risk was reduced.  After each of these periods, we then had 5 years of excellent underwriting returns despite some significant claims.  Thus, I think this website will lay low and say nothing, like Brer Rabbit, until capital has been damaged and excellent returns can again be made. 

In the meantime those with continuing exposure to risk at Lloyd’s will probably make a not unreasonable return given the work done by Rolp Tolle; that is until such a time that there is a major loss when I expect the Central Fund to be asked to pay out losses made by some of the corporates; and probably some Names.  (For those who may wish to gravitate toward the "less risky” areas of the market, let me remind you that Motor was once a part of that “less risky” area.)

Neverhtheless I and others will continue to use the site for its many links to other more useful sites!

Patrick Moore