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I don't buy it. Life insurance doesn't have a contagion effect like housing. If a small percent of people can't pay their mortgages at the same time, that cau

I don't buy it. Life insurance doesn't have a contagion effect like housing. If a small percent of people can't pay their mortgages at the same time, that causes housing prices to fall. Falling housing prices cause people who recently purchased houses to walk away from their mortgages. Suddenly mountains of money disappears from bank balance sheets and the economy crashes. Life insurance doesn't have this feedback loop. If a large number of Americans suddenly and unexpectedly die for some reason, it seems like the type of situation the government would step in to resolve anyway.

calpaterson 8y ago
> Life insurance doesn't have a contagion effect like housing. Yes they do because insurance companies invest their "float" in other assets. To me it is concievable that a large enough forced seller of debt instruments could cause a) movement in prices b) readjustments of the balance sheets of anyone holding those instruments on a "mark-to-market" basis. I feel like the attitude that "the government would step in" is doubtful (at least in the UK, the history of insurance insolvencies is that the government lets them go to the wall, particularly as a lot of insurance is unlimited liability - meaning creditors come for the partner's houses) and alternatively just a tacit acknowledgement that Prudential Financial is systemically important.
bradleyjg 8y ago
> If a large number of Americans suddenly and unexpectedly die for some reason, it seems like the type of situation the government would step in to resolve anyway. Another way to put this is privatize the premiums and socialize the risk. If we the people are going to provide a reinsurance backstop we should be compensated for it appropriately.
TuringNYC 8y ago
Every insurance company actually has two businesses in one: - An insurance business where they hope to underwrite risk intelligently to pay out less than they make in premiums. - An investment company where they investment insurance reserves (to keep them safe, but also to gain extra $ beyond what is required for reserves) The insurance reserves follow state insurance "stat" guidelines and are usually spread across corporate bonds, government bonds, and real estate debt (with a bit in riskier assets.) A housing crisis very much affects insurance companies. AIG's Securities Lending fiasco of 2008 is a perfect case study of this. https://www.americanbanker.com/opinion/aigs-collapse-the-part-nobody-likes-to-talk-about https://www.americanbanker.com/opinion/aigs-collapse-the-par...
sagichmal 8y ago
> I don't buy it . . . If a large number of Americans suddenly and unexpectedly die for some reason, it seems like the type of situation the government would step in to resolve anyway. Like the AIDS crisis?

calpaterson 8y ago

> Life insurance doesn't have a contagion effect like housing. Yes they do because insurance companies invest their "float" in other assets. To me it is concievable that a large enough forced seller of debt instruments could cause a) movement in prices b) readjustments of the balance sheets of anyone holding those instruments on a "mark-to-market" basis. I feel like the attitude that "the government would step in" is doubtful (at least in the UK, the history of insurance insolvencies is that the government lets them go to the wall, particularly as a lot of insurance is unlimited liability - meaning creditors come for the partner's houses) and alternatively just a tacit acknowledgement that Prudential Financial is systemically important.

bradleyjg 8y ago

> If a large number of Americans suddenly and unexpectedly die for some reason, it seems like the type of situation the government would step in to resolve anyway. Another way to put this is privatize the premiums and socialize the risk. If we the people are going to provide a reinsurance backstop we should be compensated for it appropriately.

TuringNYC 8y ago

Every insurance company actually has two businesses in one: - An insurance business where they hope to underwrite risk intelligently to pay out less than they make in premiums. - An investment company where they investment insurance reserves (to keep them safe, but also to gain extra $ beyond what is required for reserves) The insurance reserves follow state insurance "stat" guidelines and are usually spread across corporate bonds, government bonds, and real estate debt (with a bit in riskier assets.) A housing crisis very much affects insurance companies. AIG's Securities Lending fiasco of 2008 is a perfect case study of this. https://www.americanbanker.com/opinion/aigs-collapse-the-part-nobody-likes-to-talk-about https://www.americanbanker.com/opinion/aigs-collapse-the-par...

sagichmal 8y ago

> I don't buy it . . . If a large number of Americans suddenly and unexpectedly die for some reason, it seems like the type of situation the government would step in to resolve anyway. Like the AIDS crisis?