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It is hard to believe that an adverse mortality shock big enough to rock Pru could be absorbed by reinsurance capital. The story is a bit sensational but as an

It is hard to believe that an adverse mortality shock big enough to rock Pru could be absorbed by reinsurance capital. The story is a bit sensational but as an investor in both banks and insurance companies it is stark how regulated (post 08) banks are and how little serious regulation there is on the insurance side. A lot of it is how state level insurance is regulated which allows states to shop themselves (ie race to the bottom) as the loosest regulator.

sfifs 8y ago
> It is hard to believe that an adverse mortality shock big enough to rock Pru could be absorbed by reinsurance capital. If you have an adverse mortality rate problem big enough to shake a highly regulated industry like life insurance (there's no reason to believe mortality would be selective by insurance company), you probably have far bigger problems in your country than insurance - war, mega natural disaster, mega epidemic and the like.
- Retric 8y ago
  This assumes the companies are all equally competent. It’s easy for a company to misprice a segment and then gain over exposure as they are the cheapest option for that segment. On it’s own that’s not a big deal, but if something like a slightly unusual seasonal flu happens to hit that segment unusually hard and suddenly they have a huge liability.
- nradov 8y ago
  Most life insurance policies have exceptions for war.
- paganel 8y ago
  > war, mega natural disaster, mega epidemic and the like. It's mentioned in the article, but AIG's fall in October 2008 was as dangerous and big as Lehman's, and afaik none of the conditions mentioned in your comment were in place. Like the OP says, there have been regulations put in place to try to avoid a similar thing happening in the banking sector but the same thing hasn't happened with the big insurance companies in a consistent manner. Again, afaik the US putting some big insurance companies on this "too big to fail" list was the only such measure taken to avoid a new AIG, but with them now being off the list I see no such strong checks in place. And this should be done at the federal level, you can't expect state legislations (even if applied in the majority of the states) to put a check on an entity that has ~USD 1.4 trillion under quite active management.
  - sfifs 8y ago
    AIG's collapse had nothing to do with life insurance. It was driven by a division called AIG Financial Products which wrote the infamous credit default swaps together with equity based lending. Arguably it reinforces the learning that integrated financial giants shouldn't be allowed https://www.investopedia.com/articles/economics/09/american-investment-group-aig-bailout.asp https://www.investopedia.com/articles/economics/09/american-...
    - paganel 8y ago
      I know it had nothing to do with life insurance and I also think that the article is wrong when focusing on that part of the business, but it is correct when saying that a company like Prudential should have remained on that too-big-to-fail list. When you’re handling ~USD 1.4 trillion you are at the center of the financial system.

sfifs 8y ago

> It is hard to believe that an adverse mortality shock big enough to rock Pru could be absorbed by reinsurance capital. If you have an adverse mortality rate problem big enough to shake a highly regulated industry like life insurance (there's no reason to believe mortality would be selective by insurance company), you probably have far bigger problems in your country than insurance - war, mega natural disaster, mega epidemic and the like.

Retric 8y ago
This assumes the companies are all equally competent. It’s easy for a company to misprice a segment and then gain over exposure as they are the cheapest option for that segment. On it’s own that’s not a big deal, but if something like a slightly unusual seasonal flu happens to hit that segment unusually hard and suddenly they have a huge liability.
nradov 8y ago
Most life insurance policies have exceptions for war.
paganel 8y ago
> war, mega natural disaster, mega epidemic and the like. It's mentioned in the article, but AIG's fall in October 2008 was as dangerous and big as Lehman's, and afaik none of the conditions mentioned in your comment were in place. Like the OP says, there have been regulations put in place to try to avoid a similar thing happening in the banking sector but the same thing hasn't happened with the big insurance companies in a consistent manner. Again, afaik the US putting some big insurance companies on this "too big to fail" list was the only such measure taken to avoid a new AIG, but with them now being off the list I see no such strong checks in place. And this should be done at the federal level, you can't expect state legislations (even if applied in the majority of the states) to put a check on an entity that has ~USD 1.4 trillion under quite active management.
- sfifs 8y ago
  AIG's collapse had nothing to do with life insurance. It was driven by a division called AIG Financial Products which wrote the infamous credit default swaps together with equity based lending. Arguably it reinforces the learning that integrated financial giants shouldn't be allowed https://www.investopedia.com/articles/economics/09/american-investment-group-aig-bailout.asp https://www.investopedia.com/articles/economics/09/american-...
  - paganel 8y ago
    I know it had nothing to do with life insurance and I also think that the article is wrong when focusing on that part of the business, but it is correct when saying that a company like Prudential should have remained on that too-big-to-fail list. When you’re handling ~USD 1.4 trillion you are at the center of the financial system.