Month: February 2013

LOMA Conference 1984

iii: Recognizing the growing importance of such life insurance financial management issues as asset/liability management, cash flow forecasting, and managing liquidity, LOMA’s Treasury Operations Committee sponsored a conference, Liquidity, Investments, and Solvency, on October 1-3, 1984 in Chicago.

1: (R. Fred Richardson, President & COO, Hartford Life) These dramatic changes come as a result of the changes in products and services in response to the changed economic environment. It was, in fact, a liquidity matter which first signaled the revolution. This occurred in April 1980, when for the first time in life insurance management experience, our industry had to borrow money from the banks to meet the cash requirements.

As an aside, I subsequently heard a bank speaker gloat that life insurance management would, in the future, have to take advice on management from their bankers. In view of the management record or bankers, we can only hope that this was an inaccurate forecast.

When I joined the insurance industry many years ago, it was a maxim of the business that cash flow would always be positive. Even actuaries who dared to profess that they did not believe in eternal life, did believe in eternal positive cash flow.

2: The investment anti-selection of, and market resistance to the cost of guaranteed cash value insurance are inescapable facts of our time. The investment profits which gave us our gloriously profitable 50’s and 60’s, and saved our bottom line in the inflation of the 70’s, are a thing of the past! We will be working for a fee! Our marketing organization will be marketing our investment management. Our investment performance becomes the product.

3: The most critical areas of treasury and investment operations, with respect to both old and new products, is the matching of assets and liabilities. This is the great weakness of financial institutional structure in the U.S. Our financial institutions are almost all seriously mismatched (Banks, S&L’s, Mortgage Companies, Life Insurance).

The principal cause of this serious problem was our amazing economic stability over almost a century. In a country where interest rates on Manhattan Mortgages did not vary by more than 2% for 86 years (ending in 1962), it was natural that we developed our accounting principles, our financial regulation, our products, and our management policies on the assumption of economic stability.

4: The next mental set that threatens our health is that, “Guaranteed cash values are a fundamental aspect of individual life insurance.” There is no amount of reserve that would make these risks safe, and provide a saleable product!

5: In the future, we must only guarantee that which we can invest properly to do with safety, on a cash matching basis, and at a risk premium which the policyholder will be willing to pay!

memory (count=463)

  • Someone made a reference to The Earrings of Madame de… and I was like this sounds familiar; I searched my blog and realized that I saw it in 2007
  • Someone made a reference to Edward Burtynsky’s work and I was like this sounds familiar; I searched my blog but found nothing; now I’m filing my stack of stuff that I kept from museum visits and realizing that I saw an photography exhibit at the AGO in 2004

Long weekends are great for revisiting the past

antifragile

When linkedin removed the reading list app, I lost my quote collection. So sad. Now I’m posting my quotes on goodreads and shelfari and my blog. Yes redundancy.

6: I want to live happily in a world I don’t understand

10: In short, the fragilista is one who makes you engage in policies and actions, all artificial, in which the benefits are small and visible, and the side effects potentially severe and invisible

17: And for those who think that academia is “quieter” and an emotionally relaxing transition after the volatile and risk-taking business life, a surprise: when in action, new problems and scares emerge every day to displace and eliminate the previous day’s headaches, resentments and conflicts. A nail displaces another nail, with astonishing variety.

45: Tell the next MBA analyst or business school professor you run into that redundancy is not defensive; it is more like investment than insurance. And tell them that what they call “inefficient” is often very efficient.

73: Some businesses love their own mistakes. Reinsurance companies, who focus on insuring catastrophic risks (and are used by insurance companies to “re-insure” such non-diversifiable risks), manage to do well after a calamity or tail event that causes them to take a hit. If they are still in business and “have their powder dry” (few manage to have plans for such contingency), they make it up by disproportionally raising premia–customers overreact and pay up for insurance. They claim to have no idea about fair value, that is, proper pricing, for reinsurance, but they certainly know that it is overpriced at times of stress, which is sufficient for them to make a long-term shekel. All they need is to keep their mistakes small enough so they can survive them.

85: For a self-employed person, a small (nonterminal) mistake is information, valuable information, one that directs him in his adaptive approach; for someone employed, a mistake is something that goes into his permanent record, filed in the personnel department. Nature loves small errors, humans don’t–hence when you rely on human judgment you are at mercy of a mental bias that disfavors antifragility.

153: When Zeno of Kition, the founder of the school of Stoicism, suffered a shipwreck, he declared himself lucky to be unburdened so he could now do philosophy. The key phrase reverberating in Seneca’s oeuvre is nihil perditi, “I lost nothing,” after an adverse event. Stoicism makes you desire the challenge of a calamity.

165: The barbell businessman-scholar situation was ideal; after three or four in the afternoon, when I left the office, my day job ceased to exist until the next day and I was completely free to pursue what I found most valuable and interesting. When I tried to become an academic I felt like a prisoner, forced to follow others’ less rigorous, self-promotional programs. //And professions can be serial: something very safe, then something speculative.

197: Whenever an economic crisis occurs, greed is pointed to as the cause // we cannot change humans as easily as we can build greed-proof systems, and nobody thinks of simple solutions. // Likewise “lack of vigilance” is often proposed as the cause of an error. But lack of vigilance is not the cause of the death of a mafia don; the cause of death is making enemies, and the cure is making friends.

208: I was told that he was the biggest Swiss franc trade in the world // I thought he was Swiss Italian, yet he did not know there were Italian-speaking people in Switzerland. // I started freaking out watching all these years of education evaporating in front of my eyes. That very same day I stopped reading economic reports. I felt nauseous for a while during this enterprise of “deintellectualization”–in fact I may not have recovered yet.

213: As Yogi Berra said, “In theory there is no difference between theory and practice; in practice there is.”

220: Trades trade > traders figure out techniques and products > academics economists find formulas and claim traders are using them > new traders believe academics > blowups (from theory-induced fragility)

229: Academics were mostly just teachers, not researchers, until well into the twentieth century.

230: 1/N is the argument Mandelbrot and I used in 2005 to debunk optimized portfolios and modern finance theory on simple mathematical grounds; under Extremistan effects, we favor broad, very broad diversificaton with small equal allocations rather than what modern financial theory stipulates.

381: Anyone producing a forecast or making an economic analysis needs to have something to lose from it, given that others rely on those forecasts (to repeat, forecasts induce risk taking; they are more toxic to us than any other form of human pollution).

419: Science must not be a competition; it must not have rankings–we can see how such a system will end up blowing up. Knowledge must not have an agency problem.

thirty (count=451)

  • Great game night: Jessica brought the German version of ticket to ride; Faisel made delish (spicy optional) indian food; I’m hosting the next one in March
  • Cross country skiing with Faisel and Tiffany at Hardwood; wiped out five times so fun!
  • Cooking with dried morel
  • Finally visited Kinton Ramen; love the egg but Kenzo is still my fav
  • He made chili bread
  • He got tickets to see Othello at Stratford

trudeau’s pirouette (count=439)

  • Finished part 3 of champions; love trudeau’s pirouette; actually think both trudeau and levesque are really great; yes they are politicians but, more importantly, they are thinkers and not afraid to stand up for their ideas
  • Of course, one cannot think of trudeau without thinking of national energy program without thinking of ed clark who is the most interesting of the Canadian bank CEO’s but neither politicans nor CEO’s have happy endings

“Timing in this business is everything, and Clark need only look at his own rise to the top of TD as a reminder. Baillie was highly respected in the industry, yet he left under the stain of TD’s first-ever annual loss, apologizing to investors for the embarrassing mishap with soured loans, and essentially falling on his sword so that Clark’s tenure would begin with a clean slate.

Clark hopes to be remembered as a great leader, but, he says, “I’m not big into legacy things. I don’t want to sound gruesome, but when I’m gone, the ants will be eating the body away and I won’t feel a thing, right?“

What is happy ending?