Ordo et Chaos

Our industry exists to provide the means to protect our societies, businesses and individuals against risks that they are unable or unwilling to bear themselves, so that they can focus on being productive and fulfil their goals.

As such, it seeks to price and spread the risk of loss rationally, taking into account all relevant factors; and controlling for and excluding those risks which cannot properly be measured or quantified, because there comes a point at which no single business, or even the (re)insurance industry as whole has sufficient capital to bear certain risks- nuclear explosion being the most obvious such example.

A whole sub-sector, natCAT, has been built upon the assumption that one can predict and price so-called catastrophe risks with sufficient accuracy that the premia collected and capital accumulated will, over time, exceed the losses paid out. However, it may be that many often forget the true meaning of the word “catastrophe”: in the original Greek, καταστροφή, it means an overturning, or a sudden end- often of the established order. Chaos follows.

It may seem trite, but one could argue that we have become almost inured to the true meaning of the word, because it has become a term of art, with a quantifiable outcome- and there is a price for that. Yet, to paraphrase Oscar Wilde, it is entirely possible to know the price of everything and the value of nothing; and the traditional natCat sector is having to struggle within an environment in which the downward pressure on pricing remains relentless, with little sign of respite. It is a paradox that all the so-called “catastrophes” that are declared are, as yet, still not sufficiently “catastrophic” individually or cumulatively to arrest or reverse this trend, and senior executives continue to lament the prevalence of the dreaded “soft market”, the surfeit of capital, and the continuing rise of alternative sources from investors desperate to escape from the world of low coupons and returns inflicted by central bank monetary policies.

In such a world, a true catastrophe would almost certainly wipe out decades of returns, and take down more than a few capacity providers, with risk managers and CROs lamenting the fact that their models were flawed. We have seen that movie before!

So, one would think that a rational business manager would seek out revenue streams that are not suffering “soft markets”; where the risks are not correlated to any material extent with natCAT; and where it remains possible to write business on a value-added rather than “loss plus” basis, with well-controlled limits and attractive returns on capital and risk. That is the domain in which the Awbury Group operates- our franchise is built upon providing our clients with bespoke tools to manage their credit, financial and economic risks; and our many partners with premium flow that remains well-insulated from the afflictions of the traditional natCat markets.

We seek to price for risks where it remains possible to maintain order and avoid succumbing to catastrophe and chaos.

The Awbury Team

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