Editorial - Why this creme brulee market will soon become inedible.

(From Reinsurance)

Byline: Mark Geoghegan, editor, mark.geoghegan@incisivemedia.com.

Dear Friend,

First of all, I must acknowledge a debt of thanks to the Benfield research team for coming up with the marvellous culinary description of the state of today's market that adorns our front cover this month. If you're not familiar with the physical attributes of creme brulee, it is a creamy custard pudding with a hard caramel topping (although don't take my word for it - feel free to turn back to the front cover and re-observe at your leisure - and next time you're in London do visit the Cafe Richoux in Mayfair where we bought these examples and sample one for yourself!).

Benfield coined the phrase in its European quarterly report to describe a market that is hard on the top, but soft underneath. But the metaphor gets better - creme brulee is French for "burnt cream" - another excellent analogy for what happened last year. Much of what had hitherto been regarded as the cream of our underwriting profession got severely burnt by the storm season - and some are now financial toast.

But do remember that, taken as a whole, creme brulee is a delicious dessert, much prized the world over - the slight caramelisation of its hard sugar topping setting off the richness for the vanilla cream below. And such is today's market - a happy combination of a soft, sweet and sugary casualty market topped off by a lightly toasted offshore marine and gulf of Mexico property/catastrophe market, with various layers of sweetish business in between. The end result is an overall attractive and satisfying dessert for all - with something for everyone.

The trouble is that, as the dash to diversify away from the dead zone in the Gulf of Mexico intensifies, this pudding is going to become increasingly unpalatable. There has been no shortage of ingredients, witnessed by the flood of new capital entering our sector, but risk aversion from incumbent players means that in the severely loss-affected areas, hardening will intensify throughout the year and perhaps even into 2007. Well-diversified global players simply don't need to run unmanageable aggregates in Hurricane Alley these days - there is ...