Comments on: Who are really the smartest guys in the room? How Insurance Companies Forgot Their Way

By: Thicken My Wallet » Blog Archive » Is the Manulife dividend cut cause for larger concern?

Mon, 10 Aug 2009 08:57:20 +0000

[...] sales and bet on the market- unhedged- and lost (Canadian Capitalist allowed me to guest post on Manulife’s variable annuity problem last December if you want some more detail). How badly did it lose? $22.42 billion. In relative [...]

By: Paolo

Paolo — Mon, 05 Jan 2009 22:58:07 +0000

@20p mike – I guess I am an optimist. I expect the markets to recover over the next few years so those losses at MFC should unwind.

I agree that a tsunami is not a predictable event. But neither was a 40%-50% market decline. However, both are 1 in 100 year (or 200 or 300) events. Insurance companies cannot predict these events, but they can (and have) happened. Maybe a more “predictable” event would be an earthquake in California wiping out half the state. Should an insurance company issue insurance in California?

Hedging would have mitigated MFC’s risks. However, hedging costs money, and I guess MFC felt that it was better spent elsewhere.

(P.S. – good blog)

@Phil S –Not all policy holders are owners of mutual companies. You have to have a “participating” (or “par”) policy. You can buy a non-par policy from a mutual company and not have any voting rights. (Similarly, you can buy a “par” policy from a stock company and participate in the performance of the par fund.)

@Redfly – you are correct, there is some guarantee of capital. The minimum I believe is 75%. However, the guarantee can only be for death benefits only. So you can offer a seg fund with a 75% death benefit guarantee only, no maturity or withdrawal guarantees. The death benefits are a small cost compared to the maturity or withdrawal guarantees.

By: 2op mike

2op mike — Fri, 02 Jan 2009 19:04:02 +0000

It is always disappointing to see marketing injected into a blog discussion. It can make one question whether any true opinions exist out there.

By: Jerry

Jerry — Fri, 02 Jan 2009 06:49:23 +0000

The most intriguing and important part of your incisive commentary about the insurance companies is the last sentence, about how they are not as smart when it is not their own money. That is SO true, and it leads me to wonder about a lot of larger players in the financial industry. They get so big that they lose sight of the things that made them successful… and they can become very stupid in a hurry! Great thread, by the way.
Jerry

By: Weekly Dividend Investing Roundup - December 27, 2008 | The Dividend Guy Blog

Sat, 27 Dec 2008 11:01:34 +0000

[...] insurance companies lost their [...]

By: Redfly

Redfly — Fri, 26 Dec 2008 14:51:18 +0000

Paolo, I belive all VA/seg funds must have some guarantee of capital or they would not qualify as “life insurance” products and would be mere mutual funds that life co’s could not sell. Even on risky/volatile funs. You will pay more for an optional 100% guarnatee, however.

I agree that we may see higher fees and less product benefits in the future. Manu made record sales with its GMWB product – unfortunately, it could not do so at a worse time for itself, as the markets crashed soon after.

By: Four Pillars Investing

Four Pillars Investing — Mon, 22 Dec 2008 10:04:40 +0000

[...] Canadian Capitalist reports on the smartest guys in the room. [...]

By: Kurt

Kurt — Thu, 18 Dec 2008 19:55:46 +0000

Hey,

You know that TV show ‘Til Debt Do Us part? Well the host Gail Vaz-Oxlade has put out a 2009 Life Planner with a tonne of financial tips and money saving strategies.

Thought the canadian capitalist community might like to know!

Check it out!

http://www.shopfranticfilms.com

By: EconStudent

EconStudent — Thu, 18 Dec 2008 16:18:08 +0000

Phil S- That was a very informative post. I never knew that there are such distinctions between insurance corporations and mutual insurance company. I have auto & home insurance with State Farm (Mutual) too.

By: Phil S

Phil S — Thu, 18 Dec 2008 04:25:00 +0000

Outside of being a component of some mutual funds, I am not a shareholder in Manulife. Canadian insurance companies take two distinct structures, one is a corporation like Manulife. The other is a Mutual insurance company where the policy holders are the owners of the company. I was only using Mutual insurance companies until one converted to a corporation (Provident). When Provident converted to becoming Nationwide, I received a nice cheque in the mail for several hundred dollars which represented my share of the business as a policyholder! Yay! More recently I also received another hundred dollars from the result of a class action lawsuit related to that conversion. Anyways, I digress.

Outside of that life insurance plan, my auto & home insurance is with State Farm Mutual. Aside from the potential of receiving cash for what can be perceived as doing nothing (like in my previous example), I like that the interest of management and the interest of policyholders are aligned in a Mutual insurance company. If you don’t like the way the company is heading, you go somewhere else, essentially “voting with your feet” as it were.