In the news today

A couple of notable items relevant to the insurance industry:

• President Bush is expected to unveil the terms of a 5-year rate freeze for homeowners with mortgages that they can afford now, but wouldn't be able to once their rate resets. My gut says that this is probably good for financial service stocks in the short run, but that in the long run, the implications on the broader mortgage market are unclear and possibly not good. Are we doing away with the entire concept of charging high interest to poor credit risks? Are we giving up on the idea that the lending industry has been stung badly enough that it now knows better than to give low-rate 100% financing to people who won't prove their income? Stay tuned...
  
• Fitch predicts a modest drop in profits for life carriers, and also lower profits for P&C carriers in 2008. I'm inclined to agree with this, because the interest rate situation is unfavorable for carriers right now, and most life carriers have squeezed as much cost as they could out of their organizations already - that is, without replacing that old batch admin system they love to hate, which takes time, money and hard work.
• Bill Gross (bond guru and manager of PIMCO Total Return) sees the federal funds target rate dropping from 4.5% to 3%, starting with a quarter-point cut next week, to avoid a "near-recessionary economy". Now, full disclosure here; I owned PIMCO Total Return for many years, only selling due to a 401(K) rollover, and I owned it because I consider Bill Gross to be a LOT smarter than me. I have to disagree with him on this one, though. Things have been tough for bonds lately, of course, because rates had been going up; but a "near-recessionary economy"? Forgive me, but I just don't think we're closing in on that just yet. However, if he's right about the Fed, that's not good news for life carriers.

H/T Walt Podgurski.

The Complexity of the Global Economy

The weak US dollar has been in the news lately. The dollar's value has dropped significantly enough against other currencies that newspapers are starting to do human interest stories about how tough it is for expatriates to live on a US-dollar salary these days.

Considered in a vacuum, the US dollar's weakness can be touted as a sign of US economic weakness, which will surely bring about a global economic catastrophe. However, currencies do not exist in a vacuum.

When it first became apparent that the markets were truly global, it seemed like a threat to me. Something was always bad SOMEPLACE, right? And if Hong Kong crashed one night, it would take Tokyo with it, and the Dow would follow the next day. But after a few years, it is apparent to me that market movement still goes back to plain, old investor emotion; are we a herd, following the others right off the cliff during the selloff, or are we a pack, waiting in the brush to pounce and split up the carcass? The difference is that now, it's easier for other predators from far away to share in the spoils.

I think that weak-dollar policy has helped the trade deficit, and that the markets will correct for it. As dollar-denominated investments lose value, many overseas will continue to sell... but there's always someone waiting in the weeds to take a bite.

So what does this mean for US insurers? I think it means more and more foreign investment in US financial services companies in the short-term, as investor overreaction to subprime issues allows long-term investors to snap up shares of good companies at garage-sale prices. Over the long term, it's harder to say, although I'm optimistic that there is enough foreign cash out there to avert a potential stock market crisis over the next ten years... but more about that later.

The subprime liquidity problem, interest rates, and insurance companies

So... just how bad is the subprime mess? In my opinion, it's pretty bad, but it's not nearly as bad as its press. I think that the absence of a secondary market for mortgages and fear of draconian federal regulation has iced up the lenders a bit, but in the long run I think that the market forces at work here are simply going to encourage smarter risk-taking. I think that's a good thing.

The bad news for insurance companies is that it sounds like we may be looking at yet another rate cut, due to concerns about slowing economic growth related to the subprime debacle. It's shaping up to be another tough year for the carriers with more potential for drain on surplus. The carriers who are still running old batch systems won't be in a position to make a technology investment, they're going to miss the start of the $41T revolution, and they may never get a chance to recover. Ditto those who dumped huge dollars into the technology flavor-of-the-month, and are continuing to do so, despite little progress.

There are a couple of technology solutions that can help. I can help you sort through the noise and the hype. You can reach me at my gmail account. My user id is keithguard.

Don't wait. And if you do wait, please don't say I didn't warn you.

Ping An invests $2.7B in Fortis

Chinese insurance company Ping An has paid $2.7 billion US (about 1.8 billion euros) for a 4.2% stake in Dutch insurer Fortis.

This deal gets Ping An's President a seat on the board. Ping An says they may increase their stake to 4.99%.

Big Change.

Well, I'm officially no longer working for my employer of over 13 years.

For carriers, I can offer a solid understanding of the software search process - what works, what doesn't, and what to avoid at all costs. I know the vendors well. I know that most RFPs are too big to be of any use, and I know which parts to just skip. You can't just do the 200-pound RFP anymore because there's no time. If you don't have the systems in place that will let you get your share of the $41 trillion dollars that's about to change hands, your company is going to get swallowed in the next 10 years. Don't let it happen to you. I can help you pick a set of solutions and start your implementation before Thanksgiving if you get in touch with me today.

For vendors, I bring a solid, proven contact list, a fundamental understanding of insurance products, and an understanding of where the life and annuity market is likely to be headed over the next few years (check out the rest of this blog to see if you agree). If your product works, and has value, I can help the carriers see it.

Email is the best way to get me. It's a gmail account, and my userid is keithguard.

There's $41 Trillion out there.

Come and get it.

LOMA and LIMRA to merge, subject to member vote

The boards of LOMA and LIMRA have decided to merge the two organizations.

September 11

Sometimes, we let the day-to-day struggles of our work get in the way of remembering why we're here, and what we do. On this day 6 years ago, we turned on our televisions in the morning, and we saw unspeakable horror. We simply could not understand how someone could actually do something like that, and we couldn't imagine what our lives would be like going forward. We were, as a nation, possibly more unsure about our own future than we had been in my lifetime.

That's why we're here. That's what we do.

We provide certainty. We provide guarantees. We provide protection. We, the life insurance industry, make it possible for a man to look his child in the eye, tell them that everything's going to be all right, and go off and be a hero knowing he's done all he can to provide for his family.

So as you go through your day today, doing your usual things, dealing with your typical frustrations, please remember... our job is to make someone's worst day just a little better. It's admirable work, and it's very important, and only we can do it.