CATEX Reports

In the past month it seems the reinsurance industry has been buzzing with two big stories. First, there is continuing discussion about the Berkshire Hathaway deal with Aon at Lloyd's. We had touched on this story in the April CATEX Reports but more reactions to it have been seen.

Next, it seems as if the reinsurance industry has finally found its "voice" to answer the new flood of capital coming into ILS vehicles. Our editor, Frank Fortunato, attended the InsiderScope Conference in New York (thanks to Mark Geoghegan) and found Tom Bolt's remarks about the need to verify modeling data which he delivered at the CATEX London reception in January ringing in his ears.

Roger Crombie has a bit of a melancholy column this month as he laments the fate of Max Re via Alterra via Markel. (Roger says he would have raised his hand at the Insider Conference when reinsurance executives touted their permanence and continuity as compared to ILS solutions.) After reading his column you will learn why.

Finally, just to get this on your calendar, CATEX will have a strong representation at the Rendez-vous de September 2013 in Monaco this year. We will be reaching out to you in advance of the meetings and hope to see you there for a demo or discussion. CATEX TV will be broadcasting from Monte Carlo the week of September 9th, too, so you may get an interview request from us.

As always, if you have any questions about CATEX, our product suite, or any comments on CATEX Reports please feel free to contact us. We always enjoy hearing from our readers.

Thank you very much.

Sincerely,

Stephanie Fucetola

Senior Vice President/CATEX

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Can Underwriters Put Down Their Pens?

buffett munger

Munger and Buffett

Over the weekend of May 4th and 5th Berkshire Hathaway held its annual shareholder meeting in Omaha. As usual, some 35,000 people attended what has become a "must follow" event for anyone following the economy.

Omaha is a nice town if you've never been. The people are friendly and open. Believe it or not all that hype about Berkshire's CEO, 82 year old Warren Buffett, being a regular Omaha guy is probably true. He does live in the same Omaha house he bought 55 years ago. To be fair he also owns a house in Laguna Beach, California and we do know that Omaha can be cold in the winter.

While waiting for Buffett and Berkshire's 89 year old Vice Chairman Charlie Munger to speak the crowd of 35,000 were entertained by a video presentation. Media reported that "shareholders watched Buffett and Munger star in parody clips of the TV show "Breaking Bad" and behind-the-scenes mock negotiations with Arnold Schwarzenegger on who will play the villain in "Terminator 5." Another reminded the audience that Buffett once sang a duet with rocker Jon Bon Jovi."

bon jovi walt and jessie

Bon Jovi and Buffett Jessie and Walt in "Breaking Bad"

It doesn't get any better than that does it? How can you not appreciate someone who is the richest man in the world who doesn't mind making others laugh at his own expense? It's a pretty compelling and attractive picture and there's little wonder Buffett is so admired.

The (re)insurance industry no doubt watched the annual rites in Omaha with keen interest while still digesting news of the Berkshire-Aon arrangement announced last month. That little deal you may remember saw Berkshire agreeing to provide 7.5% of capacity to an Aon Risk Solutions $2.5 billion quota share that is placed in the Lloyd's market. Berkshire has agreed to provide the capacity and is letting the Lloyd's market processes vet the underwriting and premium pricing.

ajit Noonan

Jain Noonan

Meanwhile others in the industry claim they can't figure out what Berkshire's insurance chief Ajit Jain is doing. The CEO of Validus Holdings Group Ed Noonan said that Berkshire "was taking advantage of the Lloyd's process" and that it was "unseemly". At the InsiderScope conference in New York Validus Re's CEO Kean Driscoll said that he "can't quite figure out what Ajit is doing."

Driscoll's remarks came at the InsiderScope meeting in the context of many attendees wondering why Berkshire was willing to surrender its underwriting expertise and embark on what really could be termed a binder deal with Aon. Next, we read the comments from Lloyd's Chairman John Nelson who in a New York speech warned that Lloyd's managing agents need to protect the expertise that makes Lloyd's unique and are not compromised by new "blind underwriting" deals.

Insider logo Driscoll

InsiderScope NY Driscoll

We can't help but think of the Pink Panther scene when Peter Sellers asks a sidewalk busker if he had seen two criminals who had just run past him. The man, is playing an accordion and is wearing a sign "Aveugle". When the man asks "What two men?" and Clouseau says "Idiot! What are you? Blind?" the man helpfully answers "Yes!".

clouseau

There may be something else here too. Just as Clouseau needn't have asked the unfortunate man whether he was blind or not it could be that some of the answers to what is going on are hiding in plain sight.

Let's review some other stories we saw this month.

First, a study by Munich Re predicts that the global P&C market will grow by 50% in the next seven years. Growth, which Munich expects will be especially strong in emerging markets, is expected to top out at $2.38 trillion by 2020.

Munich Re logo

The study notes that growth in the reinsurance market will be slower than in the primary P&C market but that "there is a strong correlation between the forecast growth in reinsurance and expectations for the primary insurance markets." Obviously, instead of "trickle-down economics this is trickle-up. As more and more primary business comes in traditionally primary carriers will seek to buy reinsurance for it but the primary market will see the huge growth.

It's interesting to note that at the InsiderScope conference many speakers had already observed that the reinsurance market wasn't growing and the $30 billion in new capital that had flooded into the market last year was having a hard time being put to use.

Aon, it seems, already knew that the primary P&C market was getting ready for significant growth. Both Greg Case and Bryon Ehrhart have dropped a few hints that even Inspector Clouseau would have seen.

Ehrhart

Aon's Ehrhart

From attendee notes taken at the New York conference we see that Ehrhart was definitive in that Aon is working on healthcare insurance, workers compensation and auto insurance -or high frequency low loss business - and wants to match ILS products to these lines of business. Ehrhart thinks that eventually about 1/3 of the current $505 billion in traditional reinsurance capacity will transition to reinsurer managed ILS capacity meaning that there is still a lot of ILS capital to come and that, in time, reinsurance underwriters will manage it.

In an analysts conference call a week earlier Greg Case made it clear that Aon was continuing work on healthcare insurance, workers comp and auto insurance "exchanges". If Aon thinks that ultimately much of the ILS market will be managed by reinsurers, and Munich Re believes there will soon be a dramatic need for coverage of primary P&C risks, why not look at the growing primary P&C market to accommodate the flood of new ILS capital?

In one move Berkshire and Aon were able to make Berkshire's AA rated reinsurance rating available to primary commercial risks. Admittedly the risks were packaged as binder and fac business but their origin was from Aon's retail side. That's one route to deal with the expected 50% increase in the P&C market over the next seven years and to deploy more of the new capital.

Here's another way. If Ehrhart is right, and some $170 billion in capacity ends up originating from the ILS markets, then the same comfort that escrowed funding and full CAT bond subscriptions that ILS products have provided to the reinsurance market could have the same effect on the primary market.

How would that work? Delegated authority business is one way. As Driscoll observed in New York a lot of business is being packaged into binders that really shouldn't be. Some business that might once have required placement through a primary market, is now bundled into a binder quota share, coming direct into the Lloyd's market on a delegated basis. Brokers and MGA's could well continue to exploit this gap and no doubt will until the markets (or Tom Bolt) react and say "Stop".

But can a reinsurer managing an ILS fund package a product aimed specifically at a primary P&C line of business? One problem could be the pricing of the risks. Reinsurance and primary underwriters are different species of animals but as Ehrhart noted reinsurers can put capital out into many different formats and one of their biggest advantages over the new ILS reinsurers is that their capital is "rated" by a ratings agency. He said that the rated capital tends to be less creative than unrated capital (ILS) but that "they can and will do better".

Bryon's predictions about reinsurers being more creative would be fulfilled if they began to pursue the exploding P&C sector (remember that Berkshire is already way ahead of them with the Aon Risk Services quote share). Ehrhart said that the crux of any of this change will be in the models. He said that the more creative the structures become the more model intrusive the process becomes.

Having reinsurers begin to look at matching ILS funds with primary P&C business would certainly be "creative" and would presumably require a fairly intrusive modeling process to assist in setting a fair premium.

At the InsiderScope conference Kean Driscoll echoed what Lloyd's Tom Bolt said earlier this year when he observed that the new non-traditional capital reinsurers could be viewed as "plug and play" underwriters who simply input the model results to set the premium.

Driscoll noted that Validus maintain a vast database of proposal pricing, contract pricing, claims costs, etc. and marries that experiential data with the model results to set a price. Presumably, like other traditional reinsurers, Validus is lacking deep data on the P&C market though. The new ILS reinsurers have no such historical data in either the reinsurance or P&C markets.

case

Greg Case

Well....someone is thinking ahead here. Ehrhart mentioned something in passing about it at the InsiderScope conference. Greg Case talked about it in detail during his analysts call. The "it" in this case is Aon's Global Risk Insight Platform database (GRIP) and it has 1.6 million trades and more than $83 billion in bound premium recorded on it. Last year Aon is reported to have spent over $100 million on GRIP and added premium data from its health and benefit business.

Aon licenses GRIP for a fee and according to reports GRIP revenues added approximately $120 million to Aon's revenue in 2012. Case is hoping to generate $160 million in GRIP revenue in 2013 which would represent a 33% increase. Clearly Aon is counting on that increase coming from somewhere.

Interesting isn't it? Common wisdom is what Stephen Friedman said at InsiderScope --"Picking up nickels in the path of a steamroller is bad strategy", suggesting that reinsurers should avoid writing risks they either don't know enough about or can't get their price for.

But, as Kean Driscoll suggested, the capital market view of "dead capital", or that capital waiting on the sideline because no one is running out to pick up those nickels, is that returning it to investors, without being invested, is anathema.

Meanwhile the reinsurance market seems to be slowing in growth while the P&C market is predicted to grow by half in the next 78 months. Why not begin to look at the growth market as a place to deploy capital? If some ILS reinsurers are already being viewed setting rates by "plug and play", as underwriters supposedly base premiums simply on model results without the benefit of their own data, why would they feel any constraints about doing the same with the P&C market? But if Ehrhart is right, and reinsurers end up managing a significant chunk of ILS capacity and do decide to play in the P&C market, there are only a few options available to them.

They can try deals like Aon's Berkshire arrangement but Tom Bolt seems determined to close that door. They could try to reach this market by avoiding Tom Bolt and try to go it alone in some way (losing the benefit of the price-setting process of the Lloyd's market). But they would need to find the right P&C data (and enough of it) to compare their models to and avoid the "plug and play" stigma.

Presumably the smart money will sit out and pass up the nickels to avoid the steamroller. But let's face it --what Berkshire is getting from the Aon deal aren't just nickels and no one would ever call Berkshire anything other than smart.

Either way Aon is well positioned too. They can act as a binding broker, and continue to look for more capacity partners to cover business coming from its vast retail network, or they can offer their GRIP data to capacity providers (traditional and ILS) who want to try to go it alone. After all, with the global P&C market forecast to reach $2.38 trillion in 78 months, having both reinsurance and P&C covered seems to be a smart bet.

Bolt Warns Market on New Quota Share Deals

Bolt

As we were completing this issue a story ran about the nearest we've seen to an official response from Lloyd's on the Berkshire-Aon deal. Insurance Insider reported that Lloyd's performance management director Tom Bolt has warned CEO's and other senior executives of Lloyd's syndicates and brokers of the compliance requirements they will face if they enter into arrangements similar to the Berkshire-Aon "sidecar" deal.

Bolt's warning was typically delivered as a "gentle reminder" to the market but he noted that he would use all the tools at his disposal to keep Lloyd's participants out of the controversial portfolio deals.

There are a host of rules and regulations that govern binding authority and coverholder relationships that could provide a considerably sized tool chest for Tom Bolt to use if he wanted to. The general consensus in the market now is that Bolt intends to do just that, use anything he needs to, to block any similar future deal.

Tom's remit extends only to Lloyd's but, as he notes, he does exercise no small level of control over the delegated authority process in the Lloyd's market. If incoming pieces of cake to the Lloyd's binder markets suddenly begin to have big bite-sized pieces missing before they reach Lime Street you can bet that Bolt will find a way to respond.

Piling on the Modelers?

CAT model firms seem to be in a thankless position these days. Twenty years ago after the wreckage caused to both balance sheets and property by Hurricane Andrew the need for insight into potential damage caused by future storms provided a golden business opportunity for modelers.

Now, if people are beginning to complain about a new generation of underwriters who "plug and play" model outputs to set premiums, maybe, one would think, modeling companies have done their jobs too well.

This didn't happen overnight. We remember reading CAT bond prospectuses in the 1990s that offered data pertaining to the possible losses a bond investor could expect to sustain. That data was produced by modeling companies and CAT bond data servicing was and is a lucrative pursuit.

We were always struck by the bold faced disclaimers that followed the exhaustive predictive analysis. They were similar to the "forward looking" disclaimers included in company 10k filings but these warnings stated that the model results were no guarantee of what could happen during the life of the bond. And why not?

The models reflect output based only on the data that is entered by a licensee. And truthfully, knowing many senior modeling company executives ourselves, we know of none of them who would advocate using a model result as a replacement for good underwriting. Model results should be used in addition to good underwriting not as a replacement for it.

But the models have become better over time. More available data (you've read of so called "Big Data"?) to crunch through and faster computers with which to do it mean more and complex loss scenario permutations can be run.

The billions of dollars in new capital coming into the market has been weaned on model result projections for CAT bonds, and is comfortable with those projections. Even those bold faced disclaimers following the data results don't scare them off. So, following this logic, the new ILS reinsurers (according to some) feel comfortable setting premiums based only on those model results. This was a theme too at InsiderScope --the tolerance of risk that capital markets may have compared to traditional reinsurers.

It's a dangerous practice. As Bob Petrilli of Swiss Re Corporate Solutions said "We have fallen in love with our models, sometimes to our detriment because they don't always balance out what good underwriting can provide". If the "new" capacity is overly relying on models then the current low pricing points for premium are only exacerbating the potential problem.

At the InsiderScope meeting Bryon Ehrhart noted that amongst different models from different vendors there can be as much as a 40-200 basis point variation in the range of projected losses with such low premium price points.

Meanwhile, no doubt the modelers are happy to sell more and more model licenses but one thinks they may have a sense of collective breath holding. It's like selling great ice cream. It's wonderful that customers like it but you certainly expect purchasers to also eat selections from the other food groups every so often.

The last thing you would expect is a wave of ice cream customers getting sick claiming because the only food they ever ate was your ice cream! Since no one seems to read the fine print anyway, had a warning been placed on the back of an ice cream container, for example, saying "It is NOT advisable to eat ice cream to the exclusion of everything else!" it could have well been ignored.

Worse yet, what if millions of such misguided ice cream customer existed and you, as the producer, couldn't make the stuff fast enough to get it to the stores? Just how big would you want that warning to be anyway?

Like we said...a thankless position.

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In The Land of The Blind The One-Eyed Man is King...

Unstructured Data Upload, Validation and Conversion Feature

CATEX has a new product that has been added to its flagship Pivot Point System. We've deployed it with three current clients and are interested in showing it to others in the market.

You may know that CATEX has responded strongly to the perceived data gaps in the Delegated Authority market. Our Bordereau/Program Management System successfully joins the real time transaction features of the Pivot Point Transaction System for brokers, MGA's and risk bearers with a laser-like ability to associate specific, individual premium and claim data to hundreds of thousands of specific risks.

This is an amazingly revealing tool as now, often for the first time, coverholders, binder brokers, MGA's and delegated capacity providers can measure the experience of; specific risks, groups of similar risks, risks in particular areas, risks incurring claims at a particular time and so on. Pick your flavor and our system can show you a risk or risks through any lens you want. It's the "hard stop" to any modeled projection for a portfolio.

Of course nothing is ever easy and having built this Lamborghini (confession: we drive Toyotas) we needed to figure out a way we could satisfy its appetite by feeding it accurate and vetted data.

Your Excel data being entered now? No. It's a Nike shop...but the same idea.

That meant we had to figure out a way to easily import an infinite number of Excel docs and PDF's, each often differently formatted. We needed to validate each column and field of that data and then easily match it to columnar structured data tables within our system so that it could be stored, searched, reported upon or exported to third parties.

We have succeeded and have a product that is simple and efficient that yields huge cost savings by identifying data anomalies and can implement "learned behavior" corrective patterns for a user or company. This means that the same corrections are auto-applied when seen again from the same data source. All changes are clearly identified for review by the user and a complete audit trail follows both the original data and any and all changes or modifications made to it.

Once we easily convert that unstructured, disparate data into structured data it can be used in numerous ways by our clients. The system can export the newly structured data in multiple formats such as Excel, XML, CSVs, etc.

Spreadsheets remain the final frontier it seems but we may have moved a giant step closer to conquering it. They are great tools but so much time and data is lost (not only in (re)insurance but across all industries) via the error fraught process of near manual upload of unstructured data to structured systems that we sometimes think we've stumbled into another world when we hear the problems businesses have had to adapt to this need.

Here's a link to an article in Intelligent Insurer with more information about the product.

Roger Crombie writing for CATEX Reports takes an off-beat view of the world of insurance

Roger Crombie

MAXED OUT

Roger Crombie salutes the passing of an old friend

It felt as if a pal had died at the beginning of May, when Markel completed its acquisition of Alterra Capital Holdings. I'd been close to Alterra since its progenitor, Maximus Capital Holdings, was formed in 1999

Maximus was a holding company, run initially from a Bermuda condo. Its operating company was Max Re, one of the earliest convergence plays, which began life writing structured reinsurance products. Reinsurers and hedge funds now routinely integrate insurance risk and investment risk; in 1999, they didn't.

Moore Capital provided almost a third of Max's initial public funding; Max at one time had 40 percent of its portfolio in alternative investment funds managed by Moore.

Bob Cooney, a sociable and urbane fellow, was the driving force behind Max. An accurate depiction of Cooney would show him smiling affably. He had been the sixth employee of, and one of the first underwriters at, XL Capital (now XL Group) on its foundation in 1986. In the late spring of 1999, he resigned as president and chief executive officer of XL Insurance and executive vice president of XL.

Moore Capital had approached him. Moore, a significant money manager led by Lewis Bacon, contributed $100 million to Maximus and was joined as a founding investor by Capital Z, led by Steven Gluckstern, who had founded Centre Re, also in Bermuda

Cooney hit the road to raise capital. A similar proposal had died a-birthing a few months earlier, but Cooney had no trouble selling the Max concept. The first round of fund-raising brought $330 million. Other investors included Aon, Bank of America, and Citigroup.

In April 2000, Maximus closed a second round of private equity financing that took total capital to $551 million. Nearly 40 percent, some $213 million, came from high net worth individuals, who invested a minimum of $5 million each.

Max was built to be highly tax-efficient for those individuals. It was founded and would live in Bermuda, which levies no corporation tax. US investors in Max gained an indirect exposure to the hedge fund markets without the necessity to pay income taxes annually on realized profits.

Not among the famous Bermuda 'waves' of formations - 1993, 2001 and 2005 - Max was nevertheless born under a good sign. 2000 and the first half of 2001 were relatively benign years from a claims viewpoint; Max got off to a flying start. It booked as much business in its first six months as it had expected to write in its first full year, by the end of which it had written gross premiums of $410 million.

Within three years, proving flexible in its product lines and writing a greater percentage of traditional property catastrophe reinsurance, Max had become Bermuda's seventh-largest re/insurer and taken strategic positions in two newer Bermuda reinsurers: DaVinci Re and Grand Central Re. Max established offices in Dublin and, later, the US.

Max survived 9/11 and made a small profit in 2001 on revenue of $581 million, making the events of September 11, 2001 a matter solely for its income statement. Not too many other majors could say that.

Max Re House opened its doors in 2003, next door to the Royal Bermuda Yacht Club in Hamilton Harbour. (Until quite recently, the RBYC was virtually synonymous with Her Majesty's Government in Bermuda. The families who dominated both institutions were known locally as the "Forty Thieves.") Max's new, royal blue building replaced part of an antiques store. It sat due south of XL's global headquarters. Seen from overhead, Max Re House looked like the dot beneath the exclamation point that was XL House.

Following the three major hurricanes that dominated the 2005 season, Max diversified more fully into prop cat reinsurance at a time when the market for such coverage was experiencing strong demand. By then, Max had accumulated $1.2 billion in capital, and a billion dollars in premium.

Late in October 2006, Max experienced some accounting problems and restated its earnings for the past three years. The restated earnings would be recaptured by the company in future periods. There was no great fuss, but given the toxic atmosphere surrounding accounting restatements at the time, Cooney fell on his sword and was replaced by W. Marston (Marty) Becker as chairman and, subsequently, CEO of Max.

Becker is, outwardly, a more thoughtful individual than Cooney - you can almost hear his brain ticking over - although both men are fiercely smart. Becker had been a director of Max's holding company and spent a lifetime in insurance. A CPA and qualified attorney, he had also been chairman and CEO of Trenwick Group, another Bermuda insurance company.

Max had earned a reputation for flexibility, adjusting the nature of its book to suit market circumstances and demand. In 2006, it began the process of reducing the alternative investment segment of its invested asset portfolio to 15 to 20 percent of invested assets. A busy 2007 saw the company become Max Capital Group, forming new divisions in E&S, marine and agriculture.

With US headcount passing 200, the company expanded further into Europe. In 2008, Max opened a Lloyd's operation, following an acquisition from the Imagine Group. That year, Cooney joined Aon.

2010 was a watershed year for Max. It bid for, and lost, the chance to buy Bermuda-based IPC Re, which ended up in the Validus fold. Later that year, not long after Max celebrated its 10th birthday, Becker and John Berger of Harbor Point - a patrician and amiable fellow the height of a successful basketball player (which he had been) - merged their companies to form Alterra Capital Holdings.

The word 'merger' is usually a euphemism for 'takeover', but in the case of Max and Harbor Point, two substantial corporate enterprises joined together and moved forward without job losses, histrionics or very much in the way of bumps in the road. Becker was appointed CEO of Alterra and Berger ran the reinsurance side.

The size of the new company in dollars was almost twice that of Max, but the headcount change was only about 20 percent, so disruption was modest, as mergers go.

For the year ended December 31, 2010 - with the merger little more than half a year old - Alterra reported net income of $302.3 million. Net operating return on average shareholders' equity was 10.2 percent. Alterra's total assets were $9.9 billion, and 96 percent of its fixed maturities portfolio (by carrying value) was investment-grade.

Then, in December 2012, the final chapter began. Markel announced it had agreed to take over Alterra for $3.13 billion. That deal closed a few weeks ago, and the history of Max/Alterra as a stand-alone entity came to an end. Following the close of the transaction, Markel is expected to write annual gross premiums of about $4.4 billion, with $6 billion in equity.

Max Re and Alterra Capital: gone, but not forgotten.

* * *

Roger Crombie is an American Society of Business Publication Editors national award winner. An English chartered accountant who lives in London, he writes and broadcasts news and opinion in the US, UK, Bermuda and the Caribbean, in print and online. His main beat is insurance and financial services, with 30-year sidelines in music and humour. All views expressed in Roger's columns are exclusively his own. Contact Roger at roger.crombie@catex.com.

May 23, 2013

Quick "Bytes"

At the InsiderScope conference Stone Point Capital Chairman Stephen Friedman said that a good investment these days would be buying into entities that manage run off P&C companies because he thinks there will be a need for reinsurers to manage "tail risk" in the future as more capital market players participate. It seems Randall & Quilter has the same idea. R&Q's CFO Tom Booth says market exit solutions will be in demand soon to increase liquidity. Booth is aiming at the ILS sector which he thinks will welcome R&Q's exit solutions as capital investors will want liquidity or might want to exit the strategy altogether....

AIR's Churney RMS's Shah

Applied Insurance Research (AIR) has rebuffed RMS's offer to link its models to RMS's new risk and exposure management platform RMS(one). Hemant Shah, RMS CEO had urged AIR to "listen to its clients and make its output available" through RMS(one) but AIR's Bill Churney said AIR will not allow its models "to be deployed on a platform that is operationally controlled by a competitor"....Marsh McLennan placed the insurance program at the Rio Tinto Bingham Canyon copper mine in Utah that suffered a massive cave-in April 11th.

Landslide at Bingham Canyon

Sensors had predicted imminent slide activity and there were no fatalities but the size of the landslide was stupendous. About 165 million tons of rock (here's a comparison--this amount would fill 735,000 school buses) shifted causing a localized earthquake measuring 5.1 on the Richter scale. The mine is responsible for 17% of US copper production and will not return to full service for some time...It seems to have taken the deaths of 1,200+ workers at the Rana Plaza clothing factory in Bangladesh to finally galvanize the global apparel industry into action as a number of them have signed a pact that will pay suppliers more so factory owners can make safety upgrades....Finally, and boy oh boy is this an endless story, the UK's Andrew Bailey says that Britain intends to implement a tougher version of the EU's Solvency II for its own insurers even if Brussels legally contests Britain for acting unilaterally.

Bailey is the CEO of the new Prudential Regulation Authority and said that S2 is long, long overdue and that (oh, oh) "it is unclear to us that the French authorities will now be able to agree to any directive that we consider prudentially acceptable." To be fair Bailey also noted that the Germans are looking for a long phase-in of a decade or more for S2.... Just as we are finishing this edition we are seeing the TV images of the devastation outside Oklahoma City from an EF5 tornado. Our thoughts are with the victims and their families and AIR's early estimate is that as much as $6 billion in property damage may be been sustained....