Capital

Accumulated assets.

The Case for Mutual Insurance Companies

The best interests of financial services consumers are much better aligned with a mutual insurance company than a stock insurance company.

Mutual insurance companies are owned by policyholders. Owners of an insurance contract issued by a mutual company are both customers and owners of the insurance company.

Stock-based insurance companies are owned by shareholders, so their focus is divided between customers and shareholders.

Mutual insurance companies are a form of cooperative where individuals voluntarily associate to form an organization that serves the mutual...

A Capital Market for the Risks of Aging Societies

Swiss Re is very good at highlighting the scale of longevity risk on a global basis and the challenges--financial and otherwise--that result from aging societies. A recent report from Swiss Re highlights the magnitude of the longevity risk challenge and calls for the development of a capital market to deal with the high hurdle of funding longer lives. Points from the report that highlight the scope of longevity risk include: The aggregate value of defined benefit pension liabilities on a global...

Who Provides Longevity Insurance

The U.S. longevity insurance market has been developing for almost a decade, and yet there are...

No Time for Guarantees

The concept is seductive: a financial product that provides upside exposure in the event that equity markets trend up and to the right while also providing a floor of protection in case the bottom falls-out from under markets again.

Sort of like having your cake and eating it too. Very tempting in light of the massive financial uncertainty that has existed for the past several years.

Products playing into this “upside plus protection” theme include (but are not limited to) variable annuities with guaranteed...

Prepare to Rely on Human Capital Rather than Financial Capital

In his most recent Investment Outlook letter, PIMCO founder Bill Gross suggests that investors need to prepare for difficult adjustments in a world of near zero real returns from financial capital. 

Gross describes the dying cult of equity that has evolved over the past century, and advises readers to expect future equity returns that are much less than 6.6 percent average real return (the “Siegel constant”) since 1912. 

Gross considers the 6.6 percent real return on stocks since 1912 to be an “historical freak, a mutation likely never to be seen again as far as we mortals are concerned.” 

This view is based in part on the notion that stockholders are approaching the end of an historic run during which their 6.6 returns have...

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