4 ms·

I was unaware of this additional advantage he has. Reading up on floats it seems they are the money his insurance companies receive from premiums that has yet

I was unaware of this additional advantage he has. Reading up on floats it seems they are the money his insurance companies receive from premiums that has yet to get paid out in claims. Essentially a reserve that can be invested. Since they have a large scale of customers, this float ends up being rather high. I'm wondering how much trouble an insurance company of smaller scale would get into if they used their float in such a manner but then ended up needing that money due to some natural disaster. Is this type of risk betting money you technically don't own similar to the 2008 housing crisis or the often talked about 1930's issue with everyone wanting to take their money out of the market?

skybrian 8y ago
Yes, the tricky bit is not losing any advantage the float might bring via underwriting losses. It requires understanding risks very well and being willing to stop selling insurance (and losing market share) if the market for insurance gets too competitive.
anitil 8y ago
Insurers typically don't insure for correlated risk (natural disasters, war etc) because no insurer actually has the reserves to pay it out. Which is why water damage from a burst pipe will likely be insured but water damage from a flood is unlikely to be insured, even though from a homeowner's perspective they are effectively the same damage.
kelnos 8y ago
In addition to what sibling posters have said, insurers usually have their own insurance (called "reinsurance") that helps cover them in the event their claims exceed their cash on hand. I would imagine, though, that reinsurers will price their premiums based on risk as well; e.g. if they know that one of their customers is parking too much of their float into risky investments, they might charge higher premiums.
tim333 8y ago
Even before the natural disaster they'd get shut down by the regulators for having insufficient reserves if their investments did badly. Or in the case of Arron Banks underwriter Eldon Insurance you hang out with rich Russians and fund Brexit and somehow it's all good again.

skybrian 8y ago

Yes, the tricky bit is not losing any advantage the float might bring via underwriting losses. It requires understanding risks very well and being willing to stop selling insurance (and losing market share) if the market for insurance gets too competitive.

anitil 8y ago

Insurers typically don't insure for correlated risk (natural disasters, war etc) because no insurer actually has the reserves to pay it out. Which is why water damage from a burst pipe will likely be insured but water damage from a flood is unlikely to be insured, even though from a homeowner's perspective they are effectively the same damage.

kelnos 8y ago

In addition to what sibling posters have said, insurers usually have their own insurance (called "reinsurance") that helps cover them in the event their claims exceed their cash on hand. I would imagine, though, that reinsurers will price their premiums based on risk as well; e.g. if they know that one of their customers is parking too much of their float into risky investments, they might charge higher premiums.

tim333 8y ago

Even before the natural disaster they'd get shut down by the regulators for having insufficient reserves if their investments did badly. Or in the case of Arron Banks underwriter Eldon Insurance you hang out with rich Russians and fund Brexit and somehow it's all good again.