Garry Booth on 35 years of Reactions: 1981 and all that

Garry Booth on 35 years of Reactions: 1981 and all that

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Reactions cover collageProduced on the kitchen table at founder editor Barbara Hadley’s east London home, the launch issue promised international coverage of what was then one of a few truly global industries.

Hadley and co-founder Jon Hanna had figured out that the London market had a hinterland worth exploring.

More daringly, they also thought that it might be fun to question ancient market practices and trading relationships, and send some ripples across those usually untroubled financial services backwaters.

By the time I joined, Reactions was a quintessentially Eighties business operating out of a shared office space in a disused bus factory in Islington. Assigned a manual typewriter, a phone with a big round dial and an ash tray, my first job was to survey London’s labyrinthine underwriting agency scene, aka the fringe market.

Thirty-five years on, the fringe market (an extraordinarily seedy, seemingly pub-based scene populated by dodgy geezers in camel hair coats) has gone the same way as telex machines and typewriters.

News travelled slowly back then. Reactions operated purely on a monthly print cycle. Meetings were conducted over leisurely lunches with plenty of time in the schedule for both news and feature material to be digested. Reactions reported on business in far flung markets, albeit with a time lag. Our Australian corro Frank Rees, for example, sent his neatly typed news stories to the office in blue airmail envelopes.

But the magazine boasted a global readership and was the first to be distributed at industry conferences in Asia and Latin America.

The first inkling of how technology might change the financial services media came in the mid-Eighties when Reuters trialled a wired-in news service dedicated to insurance. Reuters launched the product at the Monte Carlo Rendez-vous by sponsoring the show’s first print show daily, published by Reactions. Like an echo from a century earlier, it was like building a canal only to see the railways take over and the Reuters service was soon made obsolete by the internet.

It must be hard for millennial reinsurance people to imagine that in 1981 there was no internet, never mind cat modelling software.

The Lloyd’s market, today a by-word for forward thinking and its ‘realistic disaster scenarios’, was still in its old building in 1981 and reliant on thousands of Names for underwriting capital. Many of them were doomed to financial hardship when huge, accumulating losses to do with asbestos and pollution brought the institution to its knees in the late-1980s. Back in 1981, rival insurance centres simply didn’t exist and it would be five years before Bermuda took its first steps towards becoming a risk hub with the incorporation of Ace, the island’s first non-captive insurer.

Indeed, up to the 1980s the global re/insurance constituency had been fairly stable. A wide and deep subscription market feeding a strong appetite for proportional reinsurance, it was densely populated by buyers, sellers and intermediaries.

Stability in the market hid practices that would raise eyebrows today, however, largely because of hands-off regulation at a local and international level. Problems at Lloyd’s had lifted the lid on risky relationships that led to the recycling of premiums and losses – the London market excss of loss spiral.

But it wasn’t until 1996 that Lloyd’s could draw a line under its past problems with the authorisation of Equitas to ring-fence losses.

Elsewhere at that time, everyone else in reinsurance was so confident they barely bothered to question how sustainable - or honest – certain developments were. ART - alternative risk transfer - was the in-thing and everyone was getting creative.

By the beginning of the 1990s, industry creativity reached its peak with the advent of finite risk reinsurance, an accounting sleight of hand that involved negligible risk transfer.

Admittedly, the trade press initially bought into the concept too, writing about the ability of finite risk to “smooth out” earnings - until deals started to be questioned by tax authorities and regulators.

If finite risk took time to fall out of favour at the turn of the millennium, an older and more established market practice blew up suddenly in everyone’s face. In 2004 an ambitious New York district attorney, Eliot Spitzer, called brokers out on their demands for pay to play contingent commissions from clients as well as outright bid-rigging.

A huge revenue earner for brokers, contingents were an accepted part of doing business through an intermediary for as long as anyone could remember. But the moral outcry over the lack of transparency in deals led to a ban and billions in compensation were paid out to policyholders.

Old habits are hard to break in the reinsurance business though. Both finite risk (structured reinsurance anyone?) as well as contingent commissions have been cleaned up and brought back into use.

It can only be a matter of time before underwriting agents make a comeback. When that happens, I’ll get the retro Mac Classic out of the loft and find an ashtray to rest my e-cigarette.

By Garry Booth

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December/January 2020

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In this month's Reactions

  • Women's Executive Forum roundtable
  • Emerging risks 2020 report
  • 2019 global catastrophe map
  • D&O market update



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