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To: NOW who wrote (219646)	2/7/2003 4:24:43 PM
From: reaper	Read Replies (3) \| Respond to of 436258

what do you mean in terms of 'take years to matter??' it will take years to replenish their depleted capital bases. which means lots of rate increases for years to come. which is not exactly good news for the economy. which of course means lower interest rates, lower stock prices, and more structured finance losses. which means more depletion to their capital bases, necessitating higher premiums. lather, rinse, repeat (and so on and so on and so on....) yes, low interest rate times are a horrible time for insurance companies. its OK now because the rate drops have caused the value of their existing fixed income assets to increase, so they can sell them for gains. BUT, they have to re-invest proceeds, and new generated premium, at these very low rates. which means they can't get an IRR unless they make an underwriting profit. when people talk about how the economy is tied to the stock market, they are usually focussed exclusively on the consumer wealth effect. but that is only the tip of the iceberg. the stock market is tied to tax revenue, to pension obligations, and to a rapidly deteriorating insurance industry (and trust me, a modern economy cannot function without a properly capitalized insurance industry; just ask Japan). again, all part of the Roach asset/liability mismatch. we have created and economy, NOT just consumer spending but in all sorts of other areas, that is premised on 10% return on capital. this system of course had upside momentum when returns were in excess of 10% (i.e. greater than 10% returns begget more greater than 10% returns) and now it is equally levered to the downside (where negative returns beget more negative returns). if any of the market strategists understood this they wouldn't be projecting a farking up year for the markets. Cheers