Insurance Market Concerns

[Joe Leote]

Home Insurance is producing losses and could transform into yet another insurance system with federal subsidies:

https://youtu.be/6B-obc1GlWI

Student loans and health insurance are federal programs because insurance firms (stochastic finance models) cannot make a profit from insuring the uninsurable risk. Car insurance companies are also reporting losses and raising prices. I think the secondary market for finance is inflating the price of houses and cars and in part this might trigger higher claims costs for insurance firms. The ratio of income (cash flow) to asset price levels is perhaps a significant factor where debt and asset prices may be increasing faster than income to service debt or pay claims on inflated asset casualties.

Joe

[Joe Leote]

Article:

Wind, Fire, Water, Hail: What Is Going on In the Property Insurance Market and Why Does It Matter? | Office of Financial Research

Joe

[William Meyer]

And only 15 years after they supposedly fixed housing post gfc.  Maybe the fed props up assets too much?  We all know about the lessons of the depression and all but maybe there are more lessons to learn?  Do asset prices ever need to fall?

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[Joe Leote]

Best paper I have read on the subject of financial security systems:

Fundamental Concepts of Actuarial Science (actuariayfinanzas.net)

There was also a more difficult paper, but I lost the reference, treating banks as a stochastic cash flow system where stochastic payments on the asset side support stochastic payments of interest, dividends, and accumulation of retained earnings on the liability side of the balance sheet. The US banking sector had accumulated retained earings via originate-to-distribute model for a long time prior to the global financial crisis of 2008. But when the market players stopped trusting each other in the credit markets and the loan default rates increases the banks would have taken a huge haircut on equity, and the insured depositors might also have had to take a haircut, if not for the Fed/Treasury bailout as Lender/Investor of Last Resort. The international US dollar economy is one giant stochastic payment system and the Fed/Treasury battery, as authorized by Congress, is the only unit with Sovereign power to insure any cash flows authorized for public purpose. Foreign adversaries are trying to drive political wedge in our Congress and voting public (via internet memes) either to disrupt the global dollar hegemony or gain favorable decisions from elected officials for their particular special interests. In short US politics have gone global because Washington can exert influence anywhere in the world through military alliances and dollar trade.

Joe

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[Joe Leote]

Car insurance pricing based on appropriate versus unjust discrimination?

triple-i_trends_and_insights_risk_based_pricing_brief_09062022.pdf (iii.org)

Government legislatures, agencies, and financial firms all create classifications as a bases to discriminate (make decisions) although unjust discrimination is supposed to be prohibited by laws. The paper on actuarial science discusses this problem in the context of efforts to manage financial security systems. Banks and money market funds that try to insure funds are operating unique types of financial security systems. They try to keep their liabilities on par with the dollar without breaking the buck. Insurance firms try to profit from taking in free cash flow, investing the cash, not having to pay interest on those funds, and paying out less cash in the future based on actual casualties. In the context of stochastic cash flow models the federal government of the United States, supported by the people and the local governments, is the most successful financial security system in the history of the world. China is trying to reset debt and asset prices in its failed real estate markets. Maybe they will figure out how to force the wealthy to take a write-off of financial wealth and reset the system. Only time will tell. The West might have to go down that road someday letting the markets reset the asset prices is just going to produce many years or even decades of bankruptcy disputes that would swamp the judicial system already under stress.

Joe

On Fri, May 17, 2024 at 12:37 PM Joe Leote <joel...@gmail.com> wrote: