State Farm Drops Out of the Florida Homeowners Market

According to an artcle in today's Wall Street Journal, State Farm is leaving the Florida Homeowners Insurance Market. It will reduce its policy exposure over the next two years or so.

It's interesting that "the state-created insurer of last resort, Citizens Property Insurance Corp.," is also characterized as having "been trying to shed policies."

- Rick

Putting the "R" in InsuRance (ARRR, ARRR)

Traveling the high seas? You might want to consider pirate insurance.

Per the Chicago Tribune today, Aon is promoting piracy insurance -- specifically, a policy which covers the time delay associated with a pirated shipment.

- Rick

Is Economic Uncertainty Decreasing?

A posting on Vox titled "The Recession Will Be Over Sooner than You Think," by Stanford economists Bloom and Floetotto, suggests that several measures of economic uncertainty have fallen recently. In fact, they say, "economic uncertainty is now dropping so rapidly that we believe growth will resume by mid-2009."

Nice to hear an occasional optimistic voice!

Hmmm...

- Rick

Market Turmoil, Regulation, and Efficiency

Two of the top financial economists in the world, Gene Fama and Ken French, recently started an online forum. They have a Q&A section in which they respond to relevant finance questions, at least a couple of which would probably be of interest to actuarial science students (as well as practitioners):

(1) "Some people have argued that the turmoil was caused by a lack of government regulation. What do you think? Do we need more regulation?"

I think the reference to the possibility of more regulation "stifling financial innovation" is very important. Also interesting is the comment that "regulators are eventually captured by the regulated. As a result, regulation often has results opposite those intended."

(2) "Is the market turmoil a sign that markets are not efficient?"

The Fama-French response identifies two market turmoil factors: expected cashflows (e.g., future dividends and growth rates), and their discount rates. Those of you who have taken my Math 210 course may recall a homework problem I always ask, which is intended to demonstrate potentially how little has to change in order to result in a significant change in the stock market. Using the dividend discount model (P = D / (i - g), where P is the price of the stock or market index, D is the next dividend, g is the growth rate of dividends, and i is the discount rate)), for example, for certain fixed values of D and i, the market consensus regarding the growth rate g need not change much in order to significantly change the price P.

- Rick

The Big Ones

A summary of the most financially significant 2008 property-casualty catastrophes, from insurancenewsnet.com . For P/C insurers, catastrophes are often the risk that causes the most concern.

- Rick

Modeling Risk-Aversion

From The Economist of January 8th, a short article ("The Bonds of Time") summarizing research indicating that "people born at different times make very different financial choices, even in similar economic environments."

Perhaps not surprising -- but think about the implications for the modeling of economic and financial behaviors (which in turn will potentially impact future economic and financial conditions). One more level of complexity to be considered...

- Rick

Retirement and 401(k)s

An article in the Wall Street Journal today - "Big Slide in 401(k)s Spurs Calls for Change" - discusses how significantly the financial crisis has affected some people's 401(k) retirement accounts. This kind of thing is why I hesitate to conclude, as some have, that the retirement actuarial function is becoming a thing of the past. The movement from defined benefit to defined contribution / 401(k)-type plans over the recent decades might suggest a decrease in the future demand for pension actuaries -- but concerns like those expressed in this article suggest that DC/401(k) plans may not be a panacea. The entire approach to pension/retirement continues to evolve, and I think that actuaries, with their quantitative skills, have a lot to say about risk management in a context of economic and financial volatility.

A couple of comments about this article (among the many that come to mind):

(1) It's true that individuals managing their own 401(k)s have largely lost money recently - and they may need to make better decisions and be better educated regarding their financial choices. But professional money managers have also lost money.

(2) While the whole 401(k) industry and process could probably use some tweaking (and there's plenty of research going on these days regarding some possible changes, for example to the ways alternative investment choices are presented to employees), it may be a bit rash to generally indict 401(k)s based on the current financial situation.

- Rick

Stimulating the Economy

A very nice and easily understood article on issues involved in stimulating the economy, from today's Wall Street Journal:

"Boost Private Investment to Boost the Economy," by Hal Varian.

Varian is a very well-known academic economist -- and happens to also be the chief economist at Google.

This article should feel very comfortable to any student who has taken even basic macroeconomics.

- Rick

Psychological Influences of the Crisis

Short, nice piece (by William Watson, the Montreal Gazette) about psychological influences on the current economic crisis. I love the line "We've gone from the subprime to the ridiculous"...).

- Rick

Top Dogs

Today, another ranking of jobs / careers came out (JobsRated.com), and, as usual, “actuary” has one of the top positions in the rankings. Here are the top five:

(1) Mathematician
(2) Actuary
(3) Statistician
(4) Biologist
(5) Software Engineer

The complete list and story is at

http://www.careercast.com/jobs/content/JobsRated_Top200Jobs

Across the years, and the different producers of such rankings, “actuary” is the one position that ALWAYS seems to be in the top few. Others come and go (as I recall, a few years ago, “actuary” was second to “website designer”), but “actuary” seems to have been consistently in the top several positions for over 20 years.

- Rick

Defined benefit vs defined contribution vs...

"Retirement Engine Rebuilt," an article from Harvard Magazine in which Nobel prize-winning finance professor Robert Merton opines on the future evolution of retirement plans:

Definied benefit ==> defined contribution ==> SmartNest.

- Rick