by Russell Hutchinson
Banks are longer lived, but finance companies are like mayflies just now. The biggest names (worldwide) in insurance have been around the better part of a century, some two. Although they do get bought and sold quite a bit, life companies rarely fail.
Notwithstanding the wobbles from AIG’s parent company yesterday, generally this record will continue, relative to other financial services companies – and it’s worth understanding why. Life companies have many small liabilities. While you can buy a million of cover for pennies, the average sum insured paid out is yet to break $100,000 for most Kiwi firms.
Also, unlike lending, you rarely get awkward clusters of claims. Individual deaths are often untimely tragedies made up of things not finished, goodbyes not said, and sins unforgiven. But overall, on average, people die on time, or slightly later than expected. When the economy goes bad, you don’t get a huge cluster. Also, because their job is risk, they’ve understood the value of sharing it around in predictable ways.
Unlike the buying and selling of second-hand loan obligations, which is a relatively new phenomenon, people have been selling each other the risk of insuring lives for over a century. Reassuring, ain’t it?
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