Daily briefing: Friday

Are we about to see a return of the hard market?

When somebody like Dave Smith, commercial broker managing director at Zurich, say he’s spotted some signs, its certainly worth taking note.

All the conditions are there for a turn, it just needs some kind of a spark. Back in the noughties, the dotcom crash, the fall of Independent Insurance and September 11 provided the impetus.

The big threats at present are Solvency II, inflation and the eurozone crisis. In my view, Japan has been overplayed, as it’s confined to loss-affected reinsurance catastrophe rates.

Barring some huge event – such as a terrorist attack or a major disaster – the most likely triggers are Solvency II and a eurozone crisis.

Looking at credit default swaps, the Greeks are likely to restructure with Portugal and Ireland at about a 40% chance.

Insurers hold bonds on these portfolios, but in relatively small amounts. Nonetheless, there could be a knock-on impact on their investment portfolios and together with a drying up of reserves, this could diminish their appetite for capacity.

There would have probably been a default – although technically it will be labelled a restructure - already were it not for the exposure of French and German banks.

Potential defaults are probably one or two years away.

Will Solvency 2 have an effect?

The waters are very muddy. Some insurers say the capital requirements are not a problem, whereas others are screaming from the rooftops that it’s a heavy burden. Whether its enough to cause a pull back on capacity, is something that we’ll out in 2012 and 2013.

If the hard market is going to turn, and that’s a big ‘if’, I reckon it will be in the later half of 2012 or 2013.

‘I could’ve got away with it …’

Talk about giving brokers a bad name. Ideal directors Faron Wilson and Neil McKay were jailed for 10 years and four months in total for conning insurers and customers out of money, we revealed last night.

McKay had served a previous jail sentence for deception in 1996, yet simply lied on his FSA form and then traded as a broker.

It’s amazing that these two got away with it for so long – you have to ask what the FSA was doing.

Instead of admitting some level of culpability for ignoring warnings, the FSA says it hasn’t done anything wrong.

How typical and how depressing.

My fear is there’s another Faron Wilson out there right now, conning his way into customers pockets, and we won’t knowing anything about it for years to come. After all, it’s not exactly hard to game the system, is it?

Read the thoughts of some of the victims, including one, who said ‘I’ll never trust a broker again’.