Notes from a reinsurance hallway

I spent three days in a hallway this summer. The sessions were fine; the useful conversations happened beside the coffee counter, between a brokers’ lunch and a capacity provider’s reception. I made notes on the back of a programme. Here is what people asked, in the order they asked it, without the names.

“Who decides the reading?”

The first question, in nearly every conversation, was who signs the number. The answer is a calculation agent that compares three sources and signs only if two of them agree within a stated margin. People nodded, and then asked the second half of the question: and who checks the agent? We have an independent annual review of every settlement, published with the capacity partners’ reports. That answer was received better than any slide.

“What happens when a gauge goes silent?”

This one came up four times. It is a good sign when someone thinks about the instrument before the weather. We described the fallback order in the schedule, the second radio link on each pole and the local log that holds fourteen days. One reinsurer asked for a sample settlement note for a silent-gauge event. We sent it the same afternoon, and it was the only attachment he opened.

“Why three tiers and not a ramp?”

A ramp is more precise and harder to explain. A tier is a staircase that can be drawn on a napkin, and every client I spoke to could draw it back at me. The point of the tier is that the claim is a number you can say aloud. A reinsurer’s analyst put it bluntly: with a ramp, you argue about where the line is; with a tier, you argue about where the steps are, which you do once, at the start.

“Where is the capacity coming from?”

The capacity is placed in layers, with five partners each leading one of them. We showed the tower, not the names, on the first day and the names on the second. The questions after that were about what happens when one partner leaves, and the answer is the same as in a property tower: the layer is re-offered at the next renewal, and the policyholder sees no change in the wording.

What I took home

Capacity providers do not worry about wind speed. They worry about whether the number will still be agreed on three years from now, by people who were not in the room. Write the policy in a way that those people can read, and the rest follows. We will be back at the same coffee counter next year, and I will bring a better pen.