Growth in shareholder funds

I find this Guy Carpenter chart interesting:

gc shareholder fundsPeriods are highlighted when overall capital is above or below the trend line.

The light blue ovals denote periods of excess capital. The dark blue denote periods of inadequate capital.

I’m not sure of any takeaway, except to note that capital excess and shortage do not, by itself, drive the market. The 2008-2009 period (labeled “Crisis”) did not drive a hard market, nor did the 1998-2000 period.

Personally, I believe what constitutes a hard market has changed, and we’re in one now.¹ And of course, according to this chart, we’re in a period of excess capital.

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¹ Prices are rising mildly – in the 5% range – and I suggest that such increases are the new normal for a hard market, because the industry has gotten so much better at tracking rate and exposure. I hasten to add that a lot of smart people – namely, just about everyone in the industry – disagrees.

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3 thoughts on “Growth in shareholder funds

  1. DW says:

    I think there are two schools of thought on it all:
    The capital-drives-hard-markets school of thought is driven by the idea that there are periods when people *want* to write more business but cannot because of capital constraints.

    The results-drives-hard-markets school of thought is based on the idea that hard markets are a combination of simultaneous portfolio rebalancing (we’re overexposed to this line) and reactionary price/underwriting skepticism (you’ve mispriced this business for 5 years and we got crushed, now you’re saying we should go back in?).

    To be honest, I find the second more compelling. I feel like I need to make a lot more leaps of faith to imagine a true capacity crunch in a market like the US.

  2. jimlynch9999 says:

    Variance had a nice sum-up of ideas last year.
    http://www.variancejournal.org/issues/05-02/91.pdf
    See page 95.

  3. DW says:

    oooh, I hadn’t seen that. Nice one, thanks.

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