insurance « POWIP

27Jan/112

Marketing stupidity in insurance

Yes, I've got plenty of pension stuff in the hopper, but I'm not in the mood to put it out right now.

What I am in the mood for is to make fun of a fluff piece of news that got combined with marketing stupidity recently at Allstate.

Now, you may have heard that there's a new, 13th sign of the zodiac now, and that the signs shifted a bit, too. Here's a HuffPo piece on that.

So, some marketing genius at Allstate thought they'd take advantage of the fluff moving through the news and talk about which signs have more car accidents:

Virgos, known to be critical, meticulous and reserved, are also more likely to get into a car accident, according to Allstate Insurance, which recently compared claims data against the recently "revised" zodiac calendar.

Over the past year, Virgos were nearly 700 percent more likely to be in a car accident when compared to the determined and aware Scorpio, the best drivers in the study. Perhaps a Virgo’s shy, perfectionist nature leads to overly cautious and timid driving habits. By contrast, Scorpios were only involved in 1.5 percent of all accidents in 2010.

The "new" sign, Ophiuchus, faired well in the study as the second-safest drivers on the road. While the jury is still out on the exact characteristics of an Ophiuchus, most astrologers seem to indicate individuals born under this sign will be a bit luckier than the rest.

Fine, just fluff -- until you realize that under the new dates, Scorpio lasts only 6 days, and Virgo lasts 45 days. Uh yeah.

So one of my fellow denizens of the Actuarial Outpost did the math:

Sign Length Acc/Day Ares 27 4163 Ophiuchus 19 4381 Aquarius 24.25 4407 Capricorn 29 4414 Gemini 31 4416 Scorpio 6 4472 Virgo 45 4703 Pisces 36 4779 Taurus 37 4797 Libra 23 4808 Leo 37 4856 Sagittarius 31 4983 Cancer 20 5077

There's a lot less variation when you compare apples to apples. [And then there's the question of what their real base rates were - we're just assuming that people are evenly born across the year, which isn't exactly true.]

Anyway, I nudged the Allstate marketing folks [and more]. Did they just learn how to use pivottables in Excel and wanted to show their know-how? I've had to proof copy from marketing before to check the numbers.... I think Allstate really should ask their actuaries before they put out anything with numbers in it.

SNORT: Allstate took down the press release. But evidently it lives on in the various PR wire services. Let's see if anybody picks it up.

Meep

Meep is a member of the Irish Catholic mafia, having a suspiciously high number of green-eyed, red-haired friends. While she doesn’t have red hair herself [except when she goes into the sun (rare for any vampire)], she does have green eyes. She’s a raving Papist and is a life actuary on the side [i.e., she counts dead people]. An amateur pain-in-the-ass [willing to go pro!], she likes covering retirement, mortality, math, and education issues.

Tagged as: insurance, marketing 2 Comments

27Oct/102

Democrats Create Exotic Financial Instrument To Fund Campaign

Over at PJM, Richard Pollack had the most interesting article of the day, on the possibility that the Democrats have collateralized their donors list in order to secure campaign funding from Bailed-Out America:

Shortly after Labor Day, as polls continued to sink, the Democratic National Committee (DNC) realized it needed a cash infusion for the upcoming midterm elections. Its chairman, former Virginia Governor Tim Kaine, turned to the Bank of America to secure a $15 million revolving credit line. Then, in the middle of this month, the Democratic Congressional Campaign Committee (DCCC) got another loan from BofA for an additional $17 million.

What was their collateral? It turns out, not much.

The DNC claims their collateral was an intangible piece of property — its donor mailing list. The DCCC only cites unnamed “assets.” Neither party organization possesses real estate even close to cover the $32 million. The DNC’s headquarters is owned by another entity. Even it was put up as collateral, its market value was last estimated at only $13.7 million.

Were the Bank of America deals legitimate, arms-length transactions, or were they cozy sweetheart deals in which nothing was really put up to secure a $32 million loan?

And if it was the latter, could it be considered an illegal campaign contribution from the largest bank holding company in America?

There also is troubling evidence that two days before closing on the loan transaction, the DNC changed its own privacy provisions to allow the selling or sharing of private donor data.

If that's so, then maybe Olivia Wilde ought to be making future dystopia vids about DemocraCorpse.

It's not that Michelle Malkin's round-up of whitewashed Democrat voter fraud isn't excellent. It is:

For the past two years, Democratic leaders have had nothing to say about the militant New Black Panther Party goons who took it upon themselves to police a Philadelphia voting booth in 2008 wielding billy clubs and shouting anti-white slurs to suppress votes. Now, they’re treating citizen election monitors as if they are the jack-booted thugs. When I lauded efforts like the Minnesota Majority, which is training volunteers to watch polls and report on voter fraud, liberal critics accused me this week of “fascism.”

Silence dissent. Criminalize watchdogs. Whitewash fraud. Discourage grassroots engagement. Deny, deny, deny. These are the signature tactics of the left in the age of Obama. On November 2, Americans get their chance to say: Enough.

The news that Obama had a meeting with high-profile lefty bloggers is kind of interesting, too. It's also funny that the UN has been hit by bedbugs. But the extent to which the Obamaists will reach to try to retain and accumulate power is well represented by the FOIA requests to the US Army:

The Democratic National Committee has asked the Pentagon to provide records of correspondence between the Army
and nine potential challengers to President Obama in 2012, Fox News has confirmed, giving a unique glimpse of part of what appears to be the Democrats' opposition research strategy.

ABC News first reported an internal Army e-mail that indicates the DNC filed Freedom of Information Act requests for "any and all records of communication" between military agencies and Sarah Palin, Mitt Romney, Haley Barbour, Tim Pawlenty, Newt Gingrich, John Thune, Mitch Daniels and Bobby Jindal, all of whom are considering campaigning for the White House.

There is simply no US governmental institution that these guys won't politicize if they think it gives them an advantage. The idea of using the Pentagon to conduct oppo research is bad enough, but when you consider that they are hiring people at substantial salaries to create Treasury exemptions to FOIA requests, you understand. Transparency.

At the same time, the DoJ just can't be bothered to ensure those military guys get the chance to vote.

Among those things that seem to have gotten lost in all this election news is the announcement from Crain's Chicago Business that Chicago mall Water Tower Place, owned by General Growth, Inc., just emerging from Chapter 11 reorganization, has secured a $200 million loan. The writer at pains to quote people saying that even at this time it's not unusual for such a top-value piece of property, but the skepticism kind of leaks out:

General Growth Properties Inc. has secured a $200-million loan to refinance the Water Tower Place mall on Michigan Avenue, reflecting the much-improved lending climate for trophy properties unscathed by the recession.

The new loan from Metropolitan Life Insurance Co. is even bigger than the $188-million loan it replaces, a rarity today as lenders have become more conservative and property values remain well below their peak of a few years ago. Yet lenders have become increasingly aggressive in recent months, offering attractive terms for top properties in big cities like Chicago.

“For the very best properties, I would call it a frenzy,” says David Hendrickson, a managing director at Jones Lang LaSalle Inc. “You've got the haves and the have-nots, and Water Tower is a have.”

The loan represents another task Chicago-based General Growth can check off its to-do list as it prepares to emerge from Chapter 11 bankruptcy protection next month. The old loan matured Sept. 1, and the General Growth joint venture that owns the 818,000-square-foot mall had sought an extension of the due date, something it no longer needs now that it has a new loan.

The Water Tower joint venture, which is not included in the Chapter 11 case, obtained the MetLife loan Sept. 28, according to a mortgage filed with the Cook County Recorder. A General Growth spokesman declines to comment, and a spokesman for New York-based MetLife did not return a phone call.

Insurers have donated more heavily to Democrats than Republicans, recently, in large part in order to have the clout to take part in the very messy health care negotiations that Obama cut Big Pharma into:

The top three Senate recipients for insurance industry contributions -- all Democrats -- are Sens. Charles Schumer, D-N.Y., Chris Dodd, D-Conn., and Harry Reid, D-Nev., according to the center's research. And in the House, it's another trio of Democrats: Reps. Melissa Bean, D-Ill., Earl Pomeroy, D-N.D., and Barney Frank, D-Mass. All have played key roles in federal insurance matters.

The guy behind a lot of General Growth's moving and shaking is one Bill Ackman, "activist investor" and Founder/CEO of Pershing Capital Management

General Growth Properties is an example. His $50 million stock investment is worth about $1.3 billion today, making General Growth the most successful investment of his career "by far," Ackman said.

Ackman began buying shares of the company in late 2008, at the height of the financial crisis. Where others saw a company careening toward bankruptcy, Ackman saw equity.

Ackman's political donations for 2008 are posted here.

MetLife has been in negotiations for bailed out AIG's American Life Insurance (ALICO) division.

Now, I'm not saying that anyone's done anything wrong here. I'm just saying it's Chicago, and most people who follow the news are focused on other things, and I sure wish that someone with a business reporting background would take a look at this deal, because my spider sense is tingling.

UPDATE: Thanks for the Malkilanche, Michelle!

Dan Collins

Dan Collins is a dude who blogs. He used to blog elsewhere. Now he blogs here.

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Tagged as: Bill Acker, Chicago, Democrats, finance, insurance, MetLife, Real Estate 2 Comments

21May/100

Betting on failure

There's a good overview of the core issue of credit default swaps in the NYT:

Should people be able to bet on your death? How about your financial failure?
….
None of this argument would be taking place if regulators had done their jobs years ago and classified credit-default swaps as insurance.
As it happened, however, clever people on Wall Street followed the prescription laid down by Humpty Dumpty in Lewis Carroll’s “Through the Looking Glass:”
“When I use a word,” Humpty Dumpty said, in rather a scornful tone, “it means just what I choose it to mean — neither more nor less.”
When Alice protested, Humpty Dumpty replied that the issue was “which is to be master — that’s all.”

More at the link that's well worth reading.

Of course, insurance is highly regulated and requires putting money aside (reserves and capital) to back up the promises being made.

Thing is, CDSs aren't the only type of “insurance” out there – all sorts of options and swaps are essentially promises, but generally no collateral seems to be required to back them. Part of the way options-writers got out of these requirements was showing methods of hedging the options so that the payoffs would be sure to be covered – such as using cash and shorting stocks to cover a put option payoff.

So CDSs would have been a lot more expensive to write if those making the promises had to reserve like other insurance products. And thus not as many would have been written, and not as many investors would have found them attractive.

But the other problem, which is popping up in the Goldman Sachs CDO situation, is asymmetrical information: when one side of the deal has a lot more information on the likelihood of failure, and is underpaying for the “protection”. Those going “naked” on CDOs and CDSs were betting that failure was much more likely than the prices they were paying for their positions would indicate.

The same thing is going on in the life insurance industry, by the way, in the arguments over STOLI. STOLI is where a third party with no insurable interest gets a person to buy a life insurance policy, carefully picked (both the policy and the person) such that the premiums are way out of line with the covered person's actual mortality rates. For STOLI to work well (just like life insurance), a lot of people need to be involved, because sometimes the people will live longer than expected and the investment takes a loss. Just like when one buys an underpriced CDS: sometimes the covered debt instrument will not default.

The issue is, though, that those holding CDSs, naked or not, could be directly involved in whether the covered debt defaults by not cooperating in a bankruptcy deal. To bring this back to STOLI, this is like the investor being the person who gets to decide if the person gets medical care. There's a pretty large conflict of interest there.

Part of the issue is that in the CDS world, all of these conflicts seem to be legal. (STOLI is on hazier ground, due to all the insurance regulation, which is done state-by-state. Many STOLI arrangements have been struck down in various states, so it's a very risky business for an investor to get involved in.)

I don't know if the financial regulation bill that just passed the Senate (and now needs to be reconciled with the House bill) will deal with this situation, but if it does, I wouldn't be surprised if a new, fancy-pants instrument were invented to rout the intended regs.

Because people who are seeking profits tend to be a cleverer bunch than your run-of-the-mill bureaucrat or politician.

So write more rules, but don't think it will prevent the next financial meltdown.

MORE BETTING ON DEATH: STOAs: stranger-originated annuities