The insurance cycle is dead, long live the insurance cycle, a controversial report has confusingly claimed.
There has been much talk of a new economic pattern emerging in the past few years – the “Goldilocks” economy in the US that is not too hot and not too cold but tepidly rising. Economists point to the seemingly unstoppable bullish US (and to a lesser extent UK) stock market, fuelled by the new economy and vast improvements in productivity.
Insurance analyst company First Consulting, now claims gentle undulating insurance cycles can also be consigned to the history books – but with exactly opposite results.
It points to the fact that the underwriting cycle in Lloyd's has been extreme since 1985. And it claims swings will become even more erratic because of a structural change in the insurance world.
There are larger insurers that can sustain soft market conditions for longer on the back of investment income, insurers so large that they are not affected by the reinsurance market, and the global economy is awash with money.
As soon as there is money to be made, the investment world and his wife pour in to make a fast buck.
“Big swings in premium levels and underwriting results will no longer be observed,” the report states.
But who bets on the advice of an economist?
Much of the evidence for this unpredictable cycle relies on the status quo remaining the status quo – a global market dominated by global players. And it relies heavily on the Goldilocks theory that keeps a global economy awash with cash and hungry for hardening insurance markets.
But as my granny would tell you: a good little ‘un always beats a clumsy big ‘un (see David v Goliath for details), and what goes up must come down.