Economics and similar, for the sleep-deprived

A subtle change has been made to the comments links, so they no longer pop up. Does this in any way help with the problem about comments not appearing on permalinked posts, readers?

Update: seemingly not

Update: Oh yeah!


Wednesday, March 10, 2004

 
The Penrose Report into the collapse of Equitable Life - D2 Digest

The important finding is that Equitable went bust because, fundamentally, it had always distributed more in bonuses than was prudent. This was actually always a selling point for Equitable�s sales force; that they paid policyholders more and held less �surplus� capital. Helas. Life assurance is actually a very simple business (nothing beyond high school maths) What makes it complicated is trying to do it with too little capital, as you have to decide two imponderables:

a) what is an acceptable risk of ruin
b) what risk of ruin you are actually running

Estimating the first is merely intractable; estimating the second is a metaphysical impossibility, unless you are prepared to extend frequentist statistics into the realm of human actions. US life assurers don�t run these risks; they are generally fully funded, which is why US actuaries have two years� less training than UK � we demand higher returns from our life assurance and so we occasionally get these blow-ups. Lesson learned for investors; don�t invest your money with people who boast about their low solvency margin. Lesson not learned for economists; �acceptable risks�, are defined as those risks acceptable to people who have not lost money.

The genuine culpability, though, was the regulators and company a) assuming without advice that Equitable would win its case in the House of Lords and b) remaining open to new business after it had lost. Taking new investors� money to pay off old and hoping that investment returns improve, is exactly what Charles Ponzi did.

DD sez: It isn�t the government�s fault that Equitable collapsed. The people who invested post 1998 should get compensated the full amount by the FSA; for the rest, it�s a hell of a shame but if caveat emptor is to mean anything it has to mean this. This will presumably dent confidence in long term savings for private pension provision, but that�s all to the good; it can�t be a good idea for people to have �confidence� in a fundamentally unstable product
1 comments this item posted by the management 3/10/2004 04:39:00 AM


This page is powered by Blogger. Isn't yours?




Links:

Bitch : Lab
Aaronovitch Watch
Balkanalysis
Perfect.co.uk
Maxspeak
Brad Delong
The Robert Vienneau blog

Political and philosophical heroes

Subcomandante Marcos
Will Rogers
Boris Vian
The English Svejk

RSS Feed:
This seems to matter to a lot of people

If you liked this "Daniel Davies" website, you might be interested in

"Danux", the web developer
The martial artist (and fan of extremely annoying Flash intros) from Blackburn
The Welsh political journalist
A Scouse computer programmer who collects Soviet cameras
"Danimal", the heavy metal drummer
Canada's finest recorder of radio jingles
More of the same, at the Guardian
A tailor's in Lampeter where Jimmy Carter once bought a hat
An advertising man who has written a novel about dogging (I think we sometimes get each other's email)
An award-winning facilities manager in Dubai
The son of the guitarist from the Kinks Update: he is apparently "balls-out motherfucking shit-dicked exxxstatic" to be included on a Kerrang magazine giveaway CD of Iron Maiden covers, which is nice.
"Fritz Gretel" from the Ramones film "Rock 'n' Roll High School"
The former presenter of the leading politics talk radio show on the Isle of Man, now a business change manager in the Manx government secretary's office
An aquarium curator in Sussex who keeps on scoring home runs like this (this is the first stable link I've found, but he is constantly kicking ass in acquarial terms)

If you didn't like this "Daniel Davies" website, then don't give up on the Daniel Davies industry completely!

An American "Christian Political Analyst" who has the same name as me
A student at Patrick Henry College
these two might be the same guy ...
"Scatter", the deceased Liberian gangster
A naked man stuck in a chimney in Wigan
A thug in Barrow



This blog has been going downhill since ...

August 2002
September 2002
October 2002
November 2002
December 2002
January 2003
February 2003
March 2003
April 2003
May 2003
June 2003
July 2003
August 2003
September 2003
November 2003
December 2003
March 2004
April 2004
May 2004
May 2005
June 2005
July 2005
August 2005
September 2005
October 2005
November 2005
December 2005
January 2006
February 2006
March 2006
April 2006
May 2006
June 2006
July 2006
August 2006
September 2006
October 2006
November 2006
December 2006
January 2007
February 2007
March 2007
April 2007
May 2007
June 2007
July 2007
August 2007
September 2007
October 2007
November 2007
December 2007
January 2008
February 2008
March 2008
April 2008
May 2008
June 2008
July 2008
August 2008
September 2008
October 2008
November 2008
December 2008
January 2009
February 2009
March 2009
April 2009
May 2009
June 2009
July 2009
August 2009
September 2009
October 2009
November 2009
December 2009
January 2010
February 2010
March 2010
April 2010
May 2010
June 2010
July 2010
August 2010
September 2010
October 2010
November 2010
December 2010
January 2011
February 2011
March 2011
April 2011
May 2011
June 2011
July 2011
August 2011
September 2011
October 2011
November 2011
December 2011
January 2012
February 2012
March 2012
April 2012
May 2012
June 2012
July 2012
August 2012
September 2012
October 2012
December 2012
February 2013
April 2013
June 2013
July 2013
August 2013
March 2014
April 2014
August 2014
October 2015