Twenty Third Floor

Figuring out the future and the now

Category: hedging

Actuarial and Risk, alternative investments, capital, climate change, Emerging Markets, emerging risk, hedging, insurance, investments, microinsurance, Solvency Assessment and Management, Solvency II

Parametric insurance getting ready for prime time

26 August 2024

David Kirk

Parametric insurance has been growing as a tool to manage risk transfer. This may become even more important as risks become more difficult to insure, and the basis risk becomes more palatable. Parametric insurance is showing signs of being ready for prime-time. Greater demand due to climate change, and greater supply as more entities and…
Read more: Parametric insurance getting ready for prime time
Actuarial and Risk, alternative investments, capital, credit risk, financial risk, hedging, insurance, investments, life insurance, liquidity risk, market risk, Solvency Assessment and Management, Solvency II, valuation

Capital implications of infrastructure assets for insurers under SAM

10 September 2019

David Kirk

Infrastructure as an asset class is hardly a new idea. Retirement funds are attracted to the promise of higher turns, long-dated cash flows, and consistency with increasingly important ESG factors. Insurers, unlikely retirement funds, have to hold risk-based capital against the risks inherent in their investments. This makes it more difficult to underestimate the risks…
Read more: Capital implications of infrastructure assets for insurers under SAM
Actuarial and Risk, hedging, Predictions, predictive modelling, Uncategorized

Binary vs “vanilla” bets and hedging

12 March 2014

David Kirk

Nassim Taleb, an author who usually inspires (except in his second book, Black Swans) has co-authored a paper with a long-tailed title “On the Difference between Binary Prediction and True Exposure with Implications for Forecasting Tournaments and Decision Making Research”. The paper isn’t paygated so check it out – it’s only 6 pages so definitely…
Read more: Binary vs “vanilla” bets and hedging
Actuarial and Risk, credit risk, currency risk, economics, financial risk, hedging, investments, life insurance, market risk

What is best practice for matching annuities in Greece in 2012?

29 November 2011

David Kirk

Best practice for matching non-profit annuities in most countries, certainly from a risk perspective, is still to cash flow match (or at the very least, match key durations) using government bonds. The theory is that the insurer isn’t then exposed to changes in the term structure on interest rates, only exposed to illiqudity/reinvestment risk to…
Read more: What is best practice for matching annuities in Greece in 2012?
Actuarial and Risk, alternative investments, economics, financial risk, hedging, investments, market risk, optimisation

Fixed Interest is a viable asset class

1 February 2011

David Kirk

I heard someone talking on Classic Business tonight. Pity I didn’t catch his name so I can avoid his advice in future. He was saying that he doesn’t see the point in investing in debt instruments. He explained that the return is low and the risk high since if the company gets into trouble, you’ll…
Read more: Fixed Interest is a viable asset class
Actuarial and Risk, book reviews, credit risk, economics, financial risk, hedging, market risk, operational risk

Book Review: The Big Short

4 July 2010

David Kirk

Michael Lewis, of Liar’s Poker fame, has written an engaging account of the role that subprime lending played in the global financial crisis. The new book is called The Big Short: Inside the Doomsday Machine The jargon that Lewis uses is generally explained and shouldn’t prevent non finance geeks from understanding the role of subprime…
Read more: Book Review: The Big Short
Actuarial and Risk, business tools, creating value, currency risk, financial risk, hedging, insight, insurance, managing uncertainty, operational risk, optimisation

Fourth Floor Tails

14 March 2010

David Kirk

I blogged recently about why I park on the fourth floor of the Cape Town airport parkade, and also about understanding and utilising unlikely but extreme events to your advantage. There is actually a link between these two posts. Parking on the top floor does have a cost. It takes longer to drive up all…
Read more: Fourth Floor Tails
Actuarial and Risk, creating value, economics, financial risk, hedging, insight, insurance, life insurance, managing uncertainty, optimisation

Nasty or nice – playing the tail

13 March 2010

David Kirk

Insurance and gambling have much in common. They both involve uncertainty and money and the rational consumer will, on average, lose money through the interaction. Both business models involve leveraging the tail of probability distributions (one nasty and one nice). The tail of a distribution includes the very bad and very good possible outcomes, that…
Read more: Nasty or nice – playing the tail

About David Kirk

Featured Posts

The Complexities of Comparing SCR Cover Ratios Across Insurers
by David Kirk
In the insurance industry, we often use Solvency Capital Requirement (SCR) cover ratios as a key metric for comparing insurers’ financial strength. While these ratios… Read more: The Complexities of Comparing SCR Cover Ratios Across Insurers
One answer could be pet insurance
by David Kirk
I firmly believe major demographics shifts are going to have massive social, political, economic, financial market and commercial impacts in the coming decades. The balance… Read more: One answer could be pet insurance
A piece of the failure puzzle – decreasing insurer failure rates through Skilled Person Reviews
by David Kirk
Every failure hits policyholders’ savings or cover, impact their lives and their livelihoods. They destroys shareholder value and decrease confidence in the entire financial sector.… Read more: A piece of the failure puzzle – decreasing insurer failure rates through Skilled Person Reviews
How and why insurers fail
by David Kirk
I’ve been updating my presentation from 2021 on “How and Why Insurers Fail”. I now estimate the annual failure rate (or at least getting into… Read more: How and why insurers fail
The hidden dangers of opinion shopping and trusting good news.
by David Kirk
I had a recent discussion on the value of getting a second opinion. There’s the old line that “if you want five opinions, ask three… Read more: The hidden dangers of opinion shopping and trusting good news.
40,000
by David Kirk
40,000. That’s the ballpark figure I usually work with as the minimum number of micro insurance policies required for scale. The expenses of running even… Read more: 40,000
IFRS17 may not kill off EV
by David Kirk
Will IFRS17 kill off Embedded Value (EV) reporting in Africa? Or will it finally bring Market Consistent Embedded Value (MCEV) to life? I gave a… Read more: IFRS17 may not kill off EV

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