The Hartford Sees High Mortality for the Next Few Years

Link:https://www.thinkadvisor.com/2024/04/26/hartford-sees-high-mortality-for-next-few-years/

Excerpt:

Chris Swift, the chief executive officer of Hartford Financial, on Friday confirmed what government statistics seem to be showing: The U.S. death rate continues to be noticeably higher than it was before early 2020, when the COVID-19 pandemic came to light.

Swift talked about the effects of the higher U.S. mortality rate on the company’s group life insurance business Friday during a conference call with securities analysts.

He noted that mortality was much lower in the first quarter than in the first quarter of 2023, but that it was still somewhat higher than the pre-pandemic average.

“The trends are downward,” Swift said. “But we believe that we’re still operating in an endemic state of mortality, which means it’s going to be higher than normal, and we think that will continue for at least the next the next couple of years. We’ve been pricing our product with that view.”

Author(s): Allison Bell

Publication Date: 26 April 2024

Publication Site: Think Advisor

Collision Course

Link: https://nymag.com/intelligencer/article/staged-car-crashes-insurance-fraud.html

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Excerpt:

There’s a narrow path to such ostentation for the non-famous and non-college-interested who mock the idea of an actual job. Mize found his muse in the con and his ability to rope others into it. Here’s how they say it happened: He struck when you wanted cash. When totems of the middle class were slipping from reach. When you needed a down payment. To pay off credit cards. To start a business. When asking your parents for money made you feel like a failure. When you were suffocated by medical bills, neither earning enough to pay nor poor enough for government help.

Yet money alone doesn’t completely explain why the people closest to Mize entered the ring. Mize had a way of making himself your center of gravity, the one from whom you wanted approval, mentorship, love. Mize could be fun, even thrilling. But getting all that meant pleasing him. And pleasing him meant fraud.

Author(s): Lauren Smiley

Publication Date: 3 Oct 2022

Publication Site: NY Mag

Insurance Fraud on the March

Link: https://www.insurancejournal.com/blogs/right-street/2024/02/12/760360.htm

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Excerpt:

Some of the most chilling examples of insurance fraud are grisly affairs revealing the darkest of humanity’s dark side:

  • John Gilbert Graham placed a time-release bomb on a plane in which his mother was traveling, for the life insurance payment. The bomb exploded. In addition to Graham’s mother all 43 other passengers and crew perished.
  • Utah physician Farid Fata administered chemotherapy to hundreds of women who did not have cancer. Fata submitted $34 million in fraudulent claims to Medicare and private insurance companies.
  • Ali Elmezayen staged a freak car accident which took the lives of his two autistic children and nearly drowned his wife. He collected a $260,000 insurance payout, but his crime was discovered. He was sentenced to 212 years in prison.
  • A Chicago federal grand jury charged 23 defendants with participating in a fraud scheme swindling $26 million from ten life insurers. The scheme featured submission of fraudulent applications to obtain policies, and misrepresenting the identity of the deceased.

There are thousands of other equally horrific insurance fraud stories. The annual Dirty Dozen Hall of Shame report describes some of the most egregious, and contributes to an understanding of how far fraudsters will go to cheat insurance companies.

….

Improvements in predictive modeling and the introduction of artificial intelligence (AI) have strengthened insurers abilities to identify, and ultimately investigate, submitted claims that may be fraudulent. At the same time, however, AI is also being used as a weapon to penetrate insurers’ fraud detection systems. Techniques being used include AI-created fake photographs of cars of a particular make and model showing damage that is not real, but used to extract a claims payment. Some insurers are no longer accepting photos because they may be doctored, and are returning to adjustors physically visiting the allegedly damaged car. A nefarious life insurance scam includes AI-enabled manipulation of ones voice so that a criminal third party gets past insurers’ voice recognition technology, and initiates a policy being surrendered to a non-policyholder, non-beneficiary. It seems that for every additional layer of protection insurers introduce, the criminals are keeping up, if not forging ahead.

Author(s): Jerry Theodorou, R Street

Publication Date: 12 Feb 2024

Publication Site: Insurance Journal

Post Office scandal explained: What the Horizon saga is all about

Link: https://www.bbc.com/news/business-56718036

Excerpt:

The Post Office had prosecution powers and, between 1999 and 2015, it prosecuted 700 sub-postmasters and sub-postmistresses – an average of one a week – based on information from a computer accounting system called Horizon. Another 283 cases were brought by other bodies including the Crown Prosecution Service.

Some went to prison for false accounting and theft. Many were financially ruined, even though they had repeatedly highlighted problems with the software.

After 20 years, campaigners won a legal battle to have their cases reconsidered. To date only 93 convictions have been overturned. Under government plans, victims will be able to sign a form to say they are innocent, in order to have their convictions overturned and claim compensation.

….

Horizon was introduced by the Post Office in 1999. The system was developed by the Japanese company Fujitsu, for tasks like accounting and stocktaking.

Sub-postmasters complained about bugs in the system after it falsely reported shortfalls – often for many thousands of pounds.

Some attempted to plug the gap with their own money, as their contracts stated that they were responsible for any shortfalls. Many faced bankruptcy or lost their livelihoods as a result.

The Horizon system is still used by the Post Office, which describes the latest version as “robust”.

….

Nobody has ever been held accountable for the scandal.

The heavily criticised former Post Office chief executive, Paula Vennells, said she would hand back her CBE after a petition calling for its removal gathered more than a million signatures.

Lib Dem leader Sir Ed Davey is among several politicians who have faced questions, as he was postal affairs minister in the coalition government. He said he regretted not asking “tougher questions” of Post Office managers, describing what had happened as “dreadful”.

The inquiry is hearing from Post Office investigators, Fujitsu, civil servants and others.

Author(s): By Kevin Peachey, Michael Race & Vishala Sri-Pathma

Publication Date: 11 Jan 2024

Publication Site: BBC News

Letter to Citizens Property Insurance Corporation from Senate Committee on the Budget

Link: https://www.budget.senate.gov/imo/media/doc/letter_to_citizens.pdf

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Excerpt:

As of 2022, Citizens’ market share for homeowners multi-peril policies was approaching 20 percent, having more than doubled since 2020. As private insurers in Florida continue to go insolvent or exit the state, Citizens’ market share will likely continue to grow. At 20 percent market share, Citizens’ losses could be as high as $36 billion in the scenario studied by Swiss Re or $162 billion in the scenario studied by Cambridge and Munich Re (assuming that 60 percent of total losses are insured). If Citizens had to raise $162 billion to cover losses, that would result in an approximately $20,000 assessment for every homeowners insurance policyholder in Florida.

….

To that end, please respond to the following requests for information and documents by December 21, 2023:

1. What modeling or other analysis has Citizens done to estimate its total potential exposure to various worst case hurricane scenarios? What is the upper range of Citizens’ potential losses? Please provide all documents and communication relating to modeling, analysis, and estimates of Citizens’ potential losses.

2. What modeling or other analysis has Citizens done to estimate its market share over the next decade? What does Citizens project its market share to be in each of the next 10 years? Please provide all documents and communication relating to modeling, analysis, and estimates of Citizens’ future market share.

3. What modeling or other analysis has Citizens done to determine its ability to fully pay out claims resulting from various loss scenarios? Please provide all documents and communication relating to modeling, analysis, and estimates of Citizens’ financial position and (in)solvency under such scenarios.

4. What are Citizens’ current assets? What is Citizens’ total reinsurance coverage? What are the maximum total claims Citizens would be able to pay out without having to levy an assessment on Florida policyholders? Please provide all documents and communication relating to modeling, analysis, and estimates of Citizens’ current assets, reinsurance, and ability to pay claims.

5. What communications has Citizens had with Governor DeSantis, Insurance Commissioner Michael Yaworsky, their staffs, or any other state officials regarding Citizens’ current or future solvency? Please provide copies of these communications.

6. What communications has Citizens had with Governor DeSantis, Insurance Commissioner Yaworsky, their staffs, or any other state officials regarding what Citizens and/or the State would do if Citizens were unable to cover its losses? Please provide copies of these communications.

7. Has Citizens contemplated asking for a federal bailout if it were unable to cover its losses? Has Citizens discussed the possibility of a federal bailout with Governor DeSantis, Insurance Commissioner Yaworsky, their staffs, or any other state officials? Please provide copies of these communications.

Author(s): Sheldon Whitehouse

Publication Date: 30 Nov 2023

Publication Site: Senate website

SBF Was Reckless From the Start

Link: https://www.bloomberg.com/opinion/articles/2023-10-04/sbf-was-reckless-from-the-start?srnd=undefined#xj4y7vzkg

Excerpt:

First: “A Jane Street intern had what amounted to a professional obligation to take any bet with a positive expected value”? Really? I feel like, if you are a trading intern, you are really there to learn two things. One is, sure, take bets with positive expected value and avoid bets with negative expected value.

But the other is about bet sizing. As a Jane Street intern, you have $100 to bet each day, and your quasi-job is to turn that into as much money as possible. Is betting all of it (or even $98) on a single bet with a 1% edge really optimal?[6] 

People have thought about this question! Like, this is very much a central thing that traders and trading firms worry about. The standard starting point is the Kelly criterion, which computes a maximum bet size based on your edge and the size of your bankroll. Given the intern’s bankroll of $100, I think Kelly would tell you to put at most $10 on this bet, depending on what exactly you mean by “this bet.”[7] Betting $98 is too much.

I am being imprecise, and for various reasons you might not expect the interns to stick to Kelly in this situation. But when I read about interns lining up to lose their entire bankroll on bets with 1% edge, I think, “huh, that’s aggressive, what are they teaching those interns?” (I suppose the $100 daily loss limit is the real lesson about position sizing: The interns who wipe out today get to come back and play again tomorrow.) 

But I also think about a Twitter argument that Bankman-Fried had with Matt Hollerbach in 2020, in which Bankman-Fried scoffed at the Kelly criterion and said that “I, personally, would do more” than the Kelly amount. “Why? Because ultimately my utility function isn’t really logarithmic. It’s closer to linear.” As he tells Lewis, “he had use for ‘infinity dollars’” — he was going to become a trillionaire and use the money to cure disease and align AI and defeat Trump, sure — so he always wanted to maximize returns.

But as Hollerbach pointed out, this misunderstands why trading firms use the Kelly criterion.[8] Jane Street does not go around taking any bet with a positive expected value. The point of Kelly is not about utility curves; it’s not “having $200 is less than twice as pleasant as having $100, so you should be less willing to take big risks for big rewards.” The point of Kelly is about maximizing your chances of surviving and obtaining long-run returns: It’s “if you bet 50% of your bankroll on 1%-edge bets, you’ll be more likely to win each bet than lose it, but if you keep doing that you will probably lose all your money eventually.” Kelly is about sizing your bets so you can keep playing the game and make the most money possible in the long run. Betting more can make you more money in the short run, but if you keep doing it you will end in ruin.

Author(s): Matt Levine

Publication Date: 4 Oct 2023

Publication Site: Bloomberg

APPENDIX 1: MAJOR HURRICANES IN TEXAS AND THE U.S. —A HISTORICAL PERSPECTIVE

Link: https://comptroller.texas.gov/economy/fiscal-notes/2018/special-edition/history.php

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Excerpt:

In a typical year, about 100 storms and tropical disturbances develop in the Atlantic Ocean, Caribbean Sea and Gulf of Mexico. Some of these turn into tropical storms, and on average, two each year become hurricanes that make landfall in the U.S.40 Between 1851 and 2016, 289 hurricanes affected the continental U.S. Of these, 63 made landfall in Texas.41

….

Of course, hurricanes and other major storms affect the entire country, not just the Gulf Coast. Exhibit 6 lists the most destructive storms affecting the U.S. in the last half-century.

Hurricane Katrina, which caused $161.3 billion in damages, still ranks as the costliest storm in American history; Hurricane Harvey is expected to rank second, with total estimated damages of about $125 billion.45

Publication Date: February 2018, accessed April 2023

Publication Site: Fiscal Notes, Comptroller of Texas

CalPERS’ Refusal to Put Clearly Insolvent Long-Term Care Insurance Plan in Bankruptcy Increases Harm to Policyholders and Makes Board and Responsible Executives Liable

Link: https://www.nakedcapitalism.com/2023/02/calpers-refusal-to-put-clearly-insolvent-long-term-care-insurance-plan-in-bankruptcy-increases-harm-to-policyholders-and-makes-board-and-responsible-executives-liable.html

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Excerpt:

The CalPERS long-term care fiasco continues, with the board and staff taking a course of action that increases harm to policyholders by continuing to bleed them rather than put the program in bankruptcy.

For those new to this train wreck, the public comment at the February 14 CalPERS board meeting by policy-holder and certified financial planner Lawrence Grossman provides an introduction. A key bit of background is that state legislation allowed CalPERS to jump on the long-term care insurance bandwagon in the 1990s. Most of these insurance plans have gotten into a world of hurt by underestimating the degree to which proper elder care would extend lifepsans of policy-holders and overestimating the lapse rate (lapsed policies mean the premiums paid by dropouts benefit the remaining policyholders). But CalPERS’ recklessness and incompetence were in a league of its own.

CalPERS not only considerably underpriced its policies compared to commercial competitors, but it made matters worse via giving CalPERS policyholders the options of lifetime benefits (as opposed to fixed dollar benefits) and inflation protection. Inflation protection would seem like an incredible promise for any long-term insurance scheme. Yet the policies were advertised as CalPERS policies, not those of a free-standing “CalPERS Long-Term Care Fund,” as in not backed by CalPERS or the state of California.

….

Four years later and things are going according to CalPERS’ abusive plan. Even though Judge Highberger clearly rejected CalPERS’ position that it can violate policy terms and raise premiums, CalPERS has continued to increase premiums because the court so far has issued only preliminary decisions. Note these increases are vastly in excess of those implemented by commercial carriers.

Author(s): Yves Smith

Publication Date: 15 Feb 2023

Publication Site: naked capitalism

Testimony Before the Subcommittee on Oversight and Investigations of the Financial Services Committee of the U.S. House of Representatives on “An Enduring Legacy: The Role of Financial Institutions in the Horrors of Slavery and the Need for Atonement, Part Two”

Link: https://financialservices.house.gov/uploadedfiles/hhrg-117-ba09-wstate-darityw-20221207.pdf

Testimony for this hearing: https://financialservices.house.gov/events/eventsingle.aspx?EventID=409969

Excerpt:

The collective amount required to close the disparity for approximately 40 million black American
descendants of persons enslaved in the United States will come to at least $14 trillion. This is a sum that
cannot be met reasonably by private donors or other levels of government. If generous donors created a
fund to eliminate the racial wealth gap by contributing $1 billion monthly, it would take a millennium to
reach $14 trillion. The combined budgets of all state and local governments used to meet all of their
obligations amount to less than $5 trillion.

Financial institutions were key supporters and beneficiaries of American slavery. The full scope of
creditor-debtor relationships interlocked with the slave plantation system has yet to be documented
adequately. For the record details are needed about which organizations were the financiers for the
New England textile industry, which bank or banks had Brooks Brothers, producers of “plantation wear”
for both the enslaved and the enslavers, as a client, and who were the lenders to the southern planters
themselves. This will require thick archival research that has yet to be undertaken.


It is now well established that a number of existing insurance companies participated significantly in
providing slaveowners with contracts to protect them for financial loss in the event of death or damage
of their human property, particularly their highly skilled property These include New York Life, known as
the Nautilus Insurance Company in the antebellum period, Aetna, Baltimore Life, Southern Mutual
Insurance Company, the Loews Corporation, and AIG.


Lloyd’s of London and RSA Insurance Group the point before the overseas slave trade was declared
illegal, insurance companies routinely protected voyages to procure captive Africans. British insurers
figured prominently, especially Lloyd’s of London and the RSA Insurance Group , in the form of one of its
ancestor business, London Assurance.

….

During the course of approximately 100 white terrorist assaults on black communities from the Civil War
to the 1940s, black lives were taken and black owned property was seized or destroyed by the white
mobsters. Black property owners who lived through the massacres rarely received any form of
compensation, particularly from insurance companies with whom they held policies.


An estimated present value of $611 million dollars of black-owned property was lost during the 1921
Tulsa massacre. What can best be described as a “Negro clause” in the policies gave insurance
companies the basis for denying the massacre victims’ claims. The “…insurance companies fell back on
an exclusionary clause…that…said insurers wouldn’t be held liable for loss ‘caused directly or indirectly
by invasion, insurrection, riot, civil or commotion, or military or usurped power’” (Council 2021).

Author(s): William Darity Jr., the Samuel DuBois Cook Professor of Public Policy, African and African American Studies, Economics, and Business at Duke University

Publication Date: 7 Dec 2022

Publication Site: House of Representatives, Financial Services Committee

Insurers brace for hit from Florida’s costliest storm since 1992

Link: https://www.aol.com/insurers-brace-hit-floridas-costliest-120339135-182213253.html

Excerpt:

Insurers are bracing for a hit of between $28 billion and $47 billion from Hurricane Ian, in what could be the costliest Florida storm since Hurricane Andrew in 1992, according to U.S. property data and analytics company CoreLogic.

Wind losses for residential and commercial properties in Florida are expected to be between $22 billion and $32 billion, while insured storm surge losses are expected to be an additional $6 billion to $15 billion, according to CoreLogic.

“This is the costliest Florida storm since Hurricane Andrew made landfall in 1992 and a record number of homes and properties were lost,” said Tom Larsen, associate vice president, hazard & risk management, CoreLogic.

Author(s): Noor Zainab Hussain

Publication Date: 30 Sept 2022

Publication Site: Aol (Reuters)

Introduction to Credit Risk Exposure of Life Insurers

Link: https://www.soa.org/sections/joint-risk-mgmt/joint-risk-mgmt-newsletter/2022/september/rm-2022-09-fritz/

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Excerpt:

Under the old regime, the impairment was the incurred credit losses, in determining which only past events and current conditions are used. Credit losses were booked after a credit event had taken place, thus the name “incurred.” ECL and CECL require the incorporation of forward-looking information in addition to the past/current info in the calculation of impairment. There will be an allowance for credit losses since initial recognition regardless of the creditworthiness of the investment asset. The allowance can be perceived as the reserve or capital for credit risks. In practice, the allowance could be zero if there are no expected default losses for the instrument, US Treasury bonds, US Agency MBS, just to name a few.

ECL under IFRS 9 is typically calculated as a probability weighted estimate of the present value of cash shortfalls over the expected life of the financial instrument. It Is an unbiased best estimate with all cash shortfalls taking into consideration the collaterals or other credit enhancement. Four typical parameters underlying its calculation are: Probability of default (PD), loss given default (LGD, i.e., 1-Recovery Rate), exposure at default (EAD) and discounting factor (DF). Prepayments, usage given default (UGD) and other parameters can also play a role in the calculations. In the general approach the loss allowance for a financial instrument is 12-month ECL regardless of credit risk at the reporting date, unless there has been a significant increase in credit risk since initial recognition: The PD is only considered for the next 12 months while the cash shortfalls are predicted over the full lifetime; as the creditworthiness deteriorates significantly, the loss allowance is increased to full lifetime ECL in Stage 2, which should always precede stage 3 (credit impairment). Even without change of stages, any credit condition changes should be flowing into the credit loss allowance via updates in some of the underlying parameters. Exhibit 1 has an illustrative comparison between ECL, CECL, and incurred loss model.

CECL is similar to ECL except FASBs doesn’t have so-called staging as IFRS 9, which requires that only 12-month ECL is calculated in stage 1 (in the general model). In other words, CECL requires a full lifetime ECL from Day 1. There are also other differences: IFRS 9 requires certain consideration of time value of money, multiple scenarios, etc., in measurement of ECL while US GAAP CECL doesn’t.

Under US GAAP, different from CECL, currently the impairment for AFS assets, while also recorded as an allowance (with a couple exceptions), is only needed for those whose fair value is less than the amortized cost. Once it is triggered, the credit losses are then measured as the excess of the amortized cost basis over the probability weighted estimate of the present value of cash flows expected to be collected. Only the fair value change related to credit is considered in the calculation of AFS impairment. The quantitative calculation behind the probability weighted best estimate is like CECL/ECL. Both can use discounted cash flow methods with parameters such as PD although one is calculating expected cash shortfalls directly in CECL and the other is calculating the expected collectible cash payments and then is used to back out the impairment.

Author(s): Jing Fritz

Publication Date: September 2022

Publication Site: Risk Management newsletter, SOA

NHTSA Releases Initial Data on Safety Performance of Advanced Vehicle Technologies

Link: https://www.nhtsa.gov/press-releases/initial-data-release-advanced-vehicle-technologies

Report for Level 2 ADAS: https://www.nhtsa.gov/sites/nhtsa.gov/files/2022-06/ADAS-L2-SGO-Report-June-2022.pdf

Report for Levels 3-5: https://www.nhtsa.gov/sites/nhtsa.gov/files/2022-06/ADS-SGO-Report-June-2022.pdf

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Excerpt:

Today, as part of the U.S. Department of Transportation’s efforts to increase roadway safety and encourage innovation, the National Highway Traffic Safety Administration published the initial round of data it has collected through its Standing General Order issued last year and initial accompanying reports summarizing this data.

The SAE Level 2 advanced driver assistance systems summary report is available here, while the SAE Levels 3-5 automated driving systems summary report is available here. Going forward, NHTSA will release data updates monthly.

These data reflect a set of crashes that automakers and operators reported to NHTSA from the time the Standing General Order was issued last June. While not comprehensive, the data are important and provide NHTSA with immediate information about crashes that occur with vehicles that have various levels of automated systems deployed at least 30 seconds before the crash occurred.

“The data released today are part of our commitment to transparency, accountability and public safety,” said Dr. Steven Cliff, NHTSA’s Administrator. “New vehicle technologies have the potential to help prevent crashes, reduce crash severity and save lives, and the Department is interested in fostering technologies that are proven to do so; collecting this data is an important step in that effort. As we gather more data, NHTSA will be able to better identify any emerging risks or trends and learn more about how these technologies are performing in the real world.”

Publication Date: 15 June 2022

Publication Site: NHTSA