Blood on the Tracks…

Those of you who were children of the 60’s probably grew up listening to, amongst others, the legendary, iconoclastic and now (rude!) Nobelist, Bob Dylan. Readers may recognize that the title of this post is an allusion to his 1975 album of the same name (Ah! The memories… vinyl, 33 1/3 RPM, and diamond styluses…). So, in reading through the track list, we were somewhat wryly amused to come upon #s 4, 9 and 10: “Idiot Wind”, “Shelter from the Storm” and “Buckets of Rain”- and, no, we are not making this up! Even # 2 (“Simple Twist of Fate”) has potential.

We propose that NatCat (re)insurance underwriters may wish to consider one or more of these titles as an anthem! “Blood on the Tracks” itself might not go down so well.

A little more seriously, the title of the album set us thinking about the strange and vaguely menacing geopolitical and economic environment in which much of the world seems to believe it is operating. We all know that “good” news does not really count; because we are actually programmed as human beings to focus on and react more to the “bad” as part of a survival mechanism- and predators come in many guises.

However, it all depends upon one’s perspective. Demonstrably, there are many threats of a political and economic nature that challenge us- and, if we were to catalogue them, we would, no doubt, reveal some of our own biases! However, it is also true that, collectively, Humanity is almost certainly better off now than at any time in recorded history. It just doesn’t feel like it.

And that is the point: it just doesn’t feel like it.

Of course, given what happened during the Great Financial Crisis and given the other, older financial and political shocks that the members of the Awbury Team have lived through, we would equally not advocate taking the “happy pills” either (and, yes, it is also said that Bob Dylan introduced the Beatles to certain illegal substances- vide: “Lucy in the Sky with Diamonds”), because they will also cloud and distort judgement- which is when that tail risk really will come and bite you! Cue the theme from “Jaws”, or “Blood in the Water”.

What matters is being as informed, unbiased and dispassionate as possible when it comes to understanding, analyzing and assessing risk; and also assigning realistic probabilities and weightings to particular risk factors; focusing on what is actually material and ignoring the inconsequential. In this world of constant sensory overload, there is a lot to be said for the old-fashioned “hot towel” in a quiet room, whether literally or metaphorically. Reacting to “the news”, as opposed to considering relevant information, is likely to lead to quick, intemperate decisions and to the mispricing and misallocation of risk and capital.

The paradox is that within the (re)insurance industry currently we suspect many are grasping at every piece of “good news” they can, because that is the only way in which they can justify writing business at premium levels which require a suspension of belief: “bad things will not happen”, whereas they almost certainly will- and that really will leave “blood on the tracks”

And for those who would like a non-Dylan [nostalgia] trip, may we recommend Simon & Garfunkel’s “A desultory Philippic”. Not much changes…

The Awbury Team


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