The smart money

I had a very good day out yesterday, courtesy of some old and favourite clients, at the Almeida in Islington.

It’s a regular thing for St Patrick’s Day, with Guinness and some fine wines (not at the same time), jokes, more Guinness, tomfoolery, kebabs (perhaps, but not this year, which was a Good Thing) and discussions late into the evening about the state of the market and new directions.

Interestingly, this year the message coming back was that in the present market the smart money is moving – indeed, has all but moved – out of reinsurance and onto the direct side. Why? Direct cover commands a significantly higher price and the extra capacity in the reinsurance and retro market means that outwards cover is less costly.

As one wag put it to me, “the best underwriters know about trading, not (necessarily) about insurance.” That’s long been the case, but the market is especially favourable to such traders right now.

I do wonder, though, where this will lead longer-term. If the RI is underpriced, it will come home to roost. In the end.