Capital implications of infrastructure assets for insurers under SAM

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 […]

Binary vs “vanilla” bets and hedging

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 […]

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

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 […]

Fixed Interest is a viable asset class

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 […]

Book Review: The Big Short

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 […]

Fourth Floor Tails

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 […]

Nasty or nice – playing the tail

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 […]

Good economic news for Lebanon

I blogged before about some medium-term concerns I have around Lebanon’s currency stability. A story I saw today shows an opposite view, so I’m linking it here.  Moody’s have upgraded Lebanon’s bond ratings due to improved external liquidity. My original post was to temper the irrational optimism around the currency peg, rather than to say […]