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Strategies & Market Trends : Shorting stocks: Broken stocks - Analysis
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To: valueminded who wrote (1802)9/17/1998 3:26:00 PM
From: Khris Vogel  Read Replies (1) of 2506
 
Chris, the original concept of insurance related to the assignment or spreading of risk when one foresaw potential liabilities beyond what one could cover.

But if a sufficiently large party can efficiently manage its own risk (which usually can be done if the internal pool is of a certain size that makes the economics of the situation feasible), then what advantage does one have to contract out the risk?

You imply that anyone that self insures is not properly accruing the contingent liability of the risk on their books. Based on what do you come to this conclusion?

Are you aware of much self-insurance corporate America does? Apparently not.

My own co. self-insures its medical coverage for its employees. Does that mean that we don't book the proper accrual for potential claims? Hardly. We also formed a pool w/ other large fishing co.'s (as is common w/in the fishing industry) to self-insure our workers' compensation exposure. Again, we more than accrue the liability, having received returns of contributed premiums from the pool in five of the last six years, w/ said returns crediting current year expenses as we had overaccrued the liability in the name of conservatism.

Self-insurance is a very common practice in business today. It is conviently, however, a common weapon utilized by those who seek skeletons in closets that don't exist or who otherwise don't even begin insurance concepts.

If you have a case to make against LBOR w/ regard to potential understatement of WC insurance costs, please make it and do so w/ hard facts and figures. Otherwise, you are just chanting a line from other shorts who have not detailed or otherwise shown the existence of any such shortcomings.
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