Insurance

For Muni Bonds, Less Assurance – WSJ.com

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For Muni Bonds, Less AssuranceArticleStock QuotesComments 1MORE IN BUSINESS The last remaining insurer of new municipal-bond issues is bracing for a fall that could bring its industry to a new low—and possibly increase borrowing costs for some small local governments.Moodys Investors Service warned in late March that it might cut bond-insurer Assured Guaranty Ltd.s AGO -1.59% credit rating to the single-A range from the current Aa3, which is three notches below the highest rating of triple-A.A downgrade, likely in the coming weeks, would probably crimp demand from local governments and other municipal issuers for Assured Guarantys coverage, analysts and local government … Read more

This Is Who Owns Apple

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These Apple charts from Business Insider are getting more and more interesting..  With all the headlines touting AAPL as hedge fund’s number one holding, it’s a bit startling to see how small a slice of the company they actually control.  Looks like wirehouse brokers couldn’t have found an easier story to pitch to their clients..   CHART OF THE DAY: Apple Stock Ownership – Business Insider.

On Longevity Derivatives

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I am a firm believer in “you can’t get something for nothing.”  So it is when a new derivative is proposed.  Either there are natural counterparties to take up the exposure (reducing their risk), or speculators must be encouraged to take the risk (more likely).

So, with longevity derivatives, the risk is people living too long leading to more pension payments in future years.  The proposition is: find a party that is willing to make more payments if mortality is better than expected, and offer him a payment, or series of payments, as an inducement to enter the transaction.

Let’s think for a moment, what entities benefit from a rise in longevity?  I can think of one: life insurers.  But there is a problem: anti-selection.  People who buy life insurance tend to be sicker than those of the general population, who tend to be sicker than annuitants.  Annuitants live the longest, and their lifespans improve the most on average.  Life insurers would find taking on longevity risk to be a dirty hedge at best for their life insurance books.  In general there have been few reinsurance agreements for longevity risk for immediate annuity portfolios, but then, that would be a really small component of the life insurance industry at present.

Even when terminal funding was permitted (back in the 1980s to early 90s) — where plan sponsors could buy annuities from insurers to

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