TheChek News Flow

FT : Lloyd’s of London: insurance market is well covered to deal with war risks

Lloyd’s of London: insurance market is well covered to deal with war risks

A state-orchestrated campaign of cyber attacks would leave insurers vulnerable to claims

The calm between the storms might be how 2021 is remembered by global insurers.

At the heart of the industry is Lloyd’s of London. The syndicated market reported its best year of the past six at annual results on Thursday. Profits of £2.3bn reflected a recovery from the pandemic and efforts to lower costs at the 300-year-old institution.

Lloyd’s also said it was expecting large losses from Russia’s continuing conflict in Ukraine. The size of those liabilities remains a big open question. Lloyd’s chief executive John Neal would only say the hit would be in the billions of dollars and that there is enough capital to cover it. More certain is that the plethora of claims from aviation, shipping, credit and trade policies will take years to resolve.

Precedent suggests that when states go toe-to-toe, the insurance industry is kept off the top of the casualty list. War coverage is usually specific and policies are subject to seven-day cancellation clauses. Insurers can implement these to mitigate large-scale losses. Reports suggest many of these had already been called by March 12. Dates will provide the subject of future legal debates as claims advance through the courts.

Even so, the inclusion of these clauses in aviation and marine policies has not prevented them from becoming a major source of angst for investors. About $10bn worth of aircraft are stranded in Russia. The country has passed laws allowing them to be seized by the state. But losses after reinsurance will be a fraction of that amount. The collapse in shipping activity at Black Sea ports is likely to reflect the risks and soaring costs of marine insurance incurred by those operating in the region.

Global insurance losses from man-made disasters have rarely exceeded $10bn annually since the September 11 attacks, according to reinsurance provider Swiss Re. Lloyd’s core capital of £6bn appears to leave it well enough protected. A bigger risk could be a state-orchestrated campaign of cyber attacks. Such an offensive would be difficult to pin on Russia. That would change matters, leaving insurers vulnerable to claims.

FT : The hidden risks of rising rates and high house prices

The hidden risks of rising rates and high house prices

Property market trouble could exacerbate other economic headwinds

Until recently, mortgage holders across advanced economies seemed safe in the knowledge that interest rates would stay put for some time. For the entirety of some of their lives as homeowners, there has barely been a hint of problematic inflation, let alone a suggestion that central banks would raise rates quickly to stop it. The worry was not unmanageable repayments, or falling prices, but finding enough money for a deposit to keep up with a market that showed no signs of slowing.

Many now find themselves revising these expectations. The Bank for International Settlements — the so-called central bankers’ central bank — has warned that rising interest rates could make existing debt burdens difficult to cope with and cause house prices to fall. Some have wondered whether housing debt represents the next “Minsky moment”: a term used to denote the point at which debt-fuelled asset bubbles unwind to cause economic collapse.

Much ink has been spilled in an effort to explain the long housing boom in advanced economies. The availability of cheap money with which to buy property has undoubtedly been a significant factor. Rates have been kept low in an effort to boost wages and growth. The side effect of these measures has been turbocharged demand for housing which ran head-on into supply constraints in many big cities.

If this boom is about to meet its own “Minsky moment”, an out-and-out crisis should be avoidable. While some banks could be overexposed to housing, regulators have not been ignorant to this risk. Stricter capital requirements should better insulate banks — unlike in 2008 — while some authorities have also been on the front foot, restricting the ability of households to become too highly leveraged.

Still, regulators cannot afford to be sanguine. Many mortgage borrowers who purchased over the course of the boom will be in significant debt — keeping up with house price inflation has been costly. While these high-leverage loans may not make up a large proportion of banks’ books, they are the kind that could go bad as borrowers struggle to keep up with higher rates, record increases in energy prices and other cost-of-living pressures.

Even if broader financial turbulence can be avoided, falling prices would not pass by without any impact. Economists have long speculated that households’ willingness to spend has some relationship to wealth as well as income. If house prices fall markedly, some decline in consumption is likely. Any shortfall in spending due to this so-called “wealth effect” may also be exacerbated by individuals devoting a greater proportion of their income to debt repayments as rates rise, and less to purchasing goods and services in the broader economy. Unwinding housing bubbles can also have deep ramifications in communities where defaults, or mortgage stress, may be more concentrated.

There are more benign possibilities. If inflation is brought under control, increases to long-term rates — which tend to inform mortgage rates — may be tempered. Many households could cope in this situation by using the buffer of savings they accrued during the pandemic. House prices may not fall as far as feared, or even at all.

That does not mean the risks are not real. Supporting growth and staving off economic crisis through years of “cheap money” was an understandable choice. As a new age of monetary tightening dawns, central banks and governments alike must hope that the housing debt built up in the previous era does not weigh too heavily on the prospects of the next.

FT : Omega and Swatch’s surprise £207 MoonSwatch

Omega and Swatch’s surprise £207 MoonSwatch

Is it a cheap Speedmaster? A fancy Swatch? Or a brilliant mix of the two?

It takes quite a lot to pique the jaded appetites of the modern, hype-savvy, drop-sensitive consumer, but Swatch has pulled it off with a new range of candy-coloured Omega Speedmaster-inspired chronographs. The two brands, both part of Swatch Group, have come together to make MoonSwatch, a name which, like the watch itself, is a play on the famous Moonwatch.

Made from a topically tech/eco-sounding material named Bioceramic, apparently a mixture of ceramic and castor oil, it shows how far once “exotic” materials have improved in quality and come down in price. The colours – particularly the daffodil yellow of the Mission to the Sun version, the carmine of the Mission to Mars, and the (now inevitable) “Tiffany” blue of the Mission to Uranus – are fresh and bright.

But the greatest achievement of this range of 11 watches, one for each planet in our solar system, is that no one saw it coming. Even internally it was kept from all but a very few. Nobody really knows whether it is a cheap Speedmaster or a fancy Swatch. And that confusion is a good thing as it gets people talking. Some will see an icon traduced (one social media comment described it as the horological equivalent of Rolls-Royce partnering with Toyota). But I reckon that more people will see a bit of fun.

What is indisputable is that it (a) gets the collector community to focus on the Swatch brand and (b) massively extends the accessibility to the fabled Speedmaster. A Canopus white-gold Omega Speedmaster (with the new calibre 321) is currently £69,500 and before this announcement the entry price into the Moonwatch world was £5,420 (on strap). The Omega MoonSwatch is £207.

Under the leadership of the energetic Raynald Aeschlimann, Omega (and in particular its celebrated chronograph) has surfed the social-media-era watch boom with flair, exploiting minor cosmetic details once known only to hardcore collectors to create a broad range of collectibles for a generation of internet-educated instant experts.

The MoonSwatch rehearses the familiar tropes in a way that speaks to the philatelically minded collector: viz the “dot over 90” tachymeter bezel, the 42mm case diameter, and the recessed subdials. Moreover, every watch in the collection is different: for instance, the idiosyncratic “Alaska Project” subdial hands on the Mission to Mars. But it is preserved from pastiche by the fact that it is, of course, a quartz chronograph using a movement that dictates a specific 2-6-10 subdial configuration, the typical Swatch dial layout.

Importantly, it brings the Speedmaster into the market for design-led, entry-level quartz timepieces that have been issued by boutique (Furlan Marri) and big (Cartier) brands alike, but in a way that only Swatch Group could do. It is indisputably original. Omega is sometimes criticised for following what Rolex does, but whatever else you may think about it, this is not an accusation that can be levelled at the MoonSwatch.

This is not the first time that Swatch has riffed off Omega. In the past Swatch has taken advantage of Omega’s position as the official timepiece of 007 to release a boxed set of Bond-villain-inspired watches. But this unambiguous “tribute” to a specific and much-loved model raises the question of what further opportunities Swatch will espy in Omega and, for that matter, other brands in the group: maybe the time has come for a Blancpain x Swatch Fifty Fathoms, or even a Breguet x Swatch tourbillon?

MoonSwatch goes on sale this Saturday in 110 Swatch boutiques around the world. But even before the official release the watch has achieved its purpose of getting people talking about Swatch: sales, which will surely be significant, are a bonus.

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