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Technology Stocks : Internet Analysis - Discussion
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To: Joe E. who wrote (306)4/8/1999 7:48:00 AM
From: Chuzzlewit   of 419
 
Joe, you and I obviously have a bit of an insurance background (who else would know what a combined ratio is?). Of course there are both similarities and differences. The point that I was making is that e-tailing can sustain losses and grow cash simultaneously. But there will come a point of reckoning when growth slows. While interest generated is certainly a mitigating factor it will be insufficient because interest income is not of similar magnitude to insurance companies. This is due to the fact that differentials in cash flow timing is much greater with insurance companies than e-tailers.

The model also differs from that of the insurance model because there is no uncertainty about the losses. Insurance companies include an expense item called IBNR (incurred but not reported) which is a front-end loaded expense based on statistical measures. But actual losses will depend on the experience of the insured. Here we have almost certain losses.

Thanks for your thoughts on this issue.

TTFN,
CTC
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