Cynic and idealist: two views of the insurance cycle (and of the general insurance business)

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Given the destruction of value achieved by so many insurers and reinsurers over recent years, how can leaders of companies convince investors they will manage through the cycle and make profits over the long term? This paper takes a deliberately simplistic look at the big questions facing general insurers in highly competitive markets.

A cynical view of the market is contrasted with that of an idealist. The cynic can see the problems clearly enough, but experience tells him things don’t change much. The idealist can see a way of doing things differently, but thinks companies have to be courageous and operate very differently from their conventional peers if they are to avoid writing unprofitable business in soft markets and survive. He asks what behaviour he would like to see in a company, then devises a remuneration structure to encourage this behaviour. He also considers the messages necessary to convince the outside world that the company knows what it is doing.

This idealist’s naive suggestions are difficult to put into practice, especially for an existing company. But if they do have any value, what part might the actuarial profession pay in developing them and persuading other market participants to give them a try?