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To: yard_man who wrote (219591)	2/7/2003 4:09:01 PM
From: reaper	Read Replies (2) \| Respond to of 436258

<<only a few are saying the insurance companies may bave been acting more like hedge funds -- screwed up and are trying to make up the difference>> this is part of Roach's asset / liability mis-match. insurance was actually insanely cheap in the 1990s, due to (i) excess capital in the business leading to overly-competitive underwriting practices; and (ii) the ability of the insurance companies to write insurance at a combined ratio of 1.00 or higher (i.e. losses equal to or excluding premiums) because they got big gains on the capital (i.e. for the time between when they take your premium and when they pay out the get to invest the money). now of course the insurance business is paying for those sins. while US insurers do not own a lot of equity (their European cousins, especially in the re-insurance business, own a TON of equity) they do own lots of structured finance products from CDOs on down, and a lot of junk bonds. the basic point being, that now the insurance industry has seen its capital severely depleted, and has also watched the re-insurance industry hugely shrink (i.e. now they have less ability to hedge losses). with low returns in the markets (debt and equity) they are actually going to have to start writing insurance to make money on the actual product (i.e. premiums greater than expected loss). which means rates have to go WAY up; its the only way. of course, there is another way; we could not have insurance. just one of the myriad ways that the capital markets drive the economy that most don't really account for. Cheers