Jump to content

prunes

Member
 View Profile  See their activity

  • Posts

    306

  • Joined

  • Last visited

 Content Type 

Posts posted by prunes

    Insurance question

    in General Discussion

    Posted

    The AIG thread is dead these days so I figured I might cross post my question to the broader forum.

     

    A common criticism of AIG I see is that it historically underpriced and underreserved its property & casualty business. It is true that the company's initial estimates of reserves were inadequate. However, this appears largely due  to its exposure to business lines with long tail risk and that are difficult to price: excess worker's comp and casualty, D&O, etc., in addition to continued payments owed on asbestos contracts written some 25 years ago.

     

    My question is as follows. Assuming it is true that AIG is shifting to business with less tail risk (and assuming that it reserves its remaining lines properly), eventually you should see the numbers begin to improve as the losses associated with this tail risk phase out. How does one determine the "half life" of these bad contracts AIG wrote? I checked the financials but didn't see a disclosure related to this (although it is likely I might have missed it).

    What a Lovely Frickin' Day!

    in General Discussion

    Posted

    Today was exciting. I held off in hope of lower lows tomorrow. I saw an interesting fact today noting that the average mutual fund cash balance is only 3 - 4%. Doesn't seem unreasonable to think that redemptions will cause forced selling in the near future.

    USA Inc.

    in General Discussion

    Posted

    A little off topic: Government obviously isn't like a business but in many regards businesses are held to higher standards. Compare government accounting vs. business accounting, the legality of insider trading for members of congress (and their refusal to make this illegal!), etc.

    Sentences to scare you; the most important blog post in the world today

    in General Discussion

    Posted

    Per Marginal Revolution:

     

     

    According to the report, between 1990 and 2006 — the year in which issuance of Asset-Backed Securities (ABS) peaked — assets with the highest credit rating rose from a little over 20 per cent of total rated fixed-income issues to almost 55 per cent. Think about it. More than half of the world’s debt securities were, for all intents and purposes, considered risk-free. In 2006, that was nearly $5,000bn of assets.

     

    The financial crisis had a lot to do with triple-A ratings being slapped on to subprime securities which didn’t warrant them, we know that. The report says between 1990 and 2006 ABS accounted for 64 per cent of the total growth in the amount of AAA-rated fixed income, compared with 27 per cent attributable to the growth in public debt, 2 per cent to corporate and 8 per cent to other products.

     

    But watch what starts happening from 2008 and 2009.

     

    The AAA bubble re-inflates and suddenly sovereign debt becomes the major force driving the world’s triple-A supply. The turmoil of 2008 shunted some investors from ABS into safer sovereign debt, it’s true. But you also had a plethora of incoming bank regulation to purposefully herd investors towards holding more government bonds, plus a glut of central bank liquidity facilities accepting government IOUs as collateral.  Where ABS dissipated, sovereign debt stood in to fill the gap. And more.

     

    It’s one reason why the sovereign crisis is well and truly painful.

     

    It’s a global repricing of risk, again, but one that has the potential for a much larger pop, so to speak.

     

    http://marginalrevolution.com/marginalrevolution/2011/07/sentences-to-scare-you-the-most-important-blog-post-in-the-world-today.html

    US Debt Limit concerns

    in General Discussion

    Posted

    I don't think anyone is seriously worried that the US won't repay its creditors. I think you see this reflected in the bond markets. Much more worrisome is that the US would try to stealth default through money printing. Note that the current theatrics in congress right now potentially help avert the latter scenario in the future.

     

    Also, if you have to ask whether someone's credit rating is AAA, it probably isn't.

     

    Finally, Stan Drunkenmiller had a good OpEd in the WSJ a few weeks ago on this topic.

    Book Reviews

    in General Discussion

    Posted

    I just read Accounting for Value by Stephen Penman. This is a fantastic book that addresses the intersection of valuation and accounting, with its foundations in the Graham method of investing. The book gives extended treatment of how to account for growth, leverage, and risk in one's valuation. It also spends a good portion of the book discussing the perils of fair value accounting.

    Book request

    in General Discussion

    Posted

    To anyone's knowledge, is there a good book out there (or perhaps blog source) that gives a comprehensive discussion of the controversial adjustments that the US government applies and historical changes that have been made to the various economic datasets it tracks. E.g. the NFP birth/death adjustment, CPI hedonic adjustment, the emphasis of core CPI over long periods of time, etc. I know that there are blog posts that criticize each of these things and tracking that down isn't difficult, but I'm more interested in a) perhaps a more balanced argument and b) what other adjustments I might not be aware of.

     

    Thanks

     

×
×
  • Create New...