NEWSFLASH: Bernstein slams early retirement!!!

[justin]

Davew894 is perfectly capable of handling such business. I've been in the insurance industry for years and I could generate plenty of meaningful business right now... and save people some money. Only thing I am missing is $20 million.

Living in the US (the land of the free), I guess we'll never know.

How to start an insurance company:

1. Get the know-how - by your own admission you already have that
2. Put together a business plan.
3. Shop said plan to partners with money or investment bankers or venture capitalists etc. etc.
4. Establish business and take your risks and make your money.
5. Become multi-billionaire (or become bankrupt)

Pretty simple. The laws in place to regulate insurance co's are to protect the public (proletariats). Nobody likes fly-by-night insurance companies with no capital to pay claims and no desire to reinsure risks, since they can file bankrupty for less than what it would cost to reinsure. Pardon me for being elitist and patronizing, but most people (including many middle and upper class folks) aren't sophisticated insurance consumers. Our regulations (and the industry's own efforts) allow insurance to be more or less commoditized in the US, thereby encouraging competition.

Our efficient capital markets and established certainty of laws and judicial due process make the US a VERY attractive player in the international marketplace.

 

[wabmester]

Number 3 is the issue.  Number 3 is always the issue... whether you are mowing lawns or you are a CEO of an international corporation.  Elite capital is typically 'reserved' for those with political connections and those who already have capital.

There's a ton of capital out there looking for a home. Have you actually tried to raise funds? If you have a viable business model, and a good team put together, somebody will listen to your pitch. And there's always "angel" capital. Anybody with $1M or more is an "accredited investor" who is free to invest in the craziest stuff....

Every journey of 1000 miles begins with the first elevator pitch.

 

[razztazz]

[Every journey of 1000 miles begins with the first elevator pitch.   

Thanx for getting with the program and seeing the light of reality and admitting that it is easier, unwarrantedly so, for some who are simply lucky, and harder/impossible for the rest.

 

[wabmester]

Have you been involved with any?  If so, your advice might be useful.

Some, but I can only give you very generic advice since I'm not familiar with your industry. If you want to borrow the money to fund your business, lenders are most interested in lending for hard assets that they can easily liquidate if you default. If you want VC money, you first need to find a way to get your signal heard over all the other noise out there. Most VC's get 1000's of business plans and only fund a few of those. It really helps if you know somebody who knows somebody. But VC's will want a large equity stake, and very few of them deal with "mainstream" slow-growth businesses.

If you want some feedback, post your business plan here. If you really have expert domain knowledge or some other barrier to entry, you won't worry about somebody stealing your ideas. There are plenty of millionaires here, and some of them even know how to evaluate business ideas. I know that there is at least one expert here in venture financing and the IPO process, if that's what you're thinking about.

 

[wabmester]

I just had to laugh when I read your line, "It really helps if you know somebody who knows somebody."  I thought I was reading my own post. 

Well, that doesn't mean you have to have a politician in your pocket. Almost everybody knows somebody who knows somebody. Lawyers are often well connected with VCs. Other entreprenuers. And if you post enough details, you might even find somebody here who PM's you. In any case, if you don't try, you are guaranteed to fail. If you do try, you are not guaranteed success, but the journey is often its own reward.

Personally, I like businesses that are self-booting and self-propagating. I mentioned the one guy highlighted by the NY Times for making the Forbes 400 list this year. Generic brand cigarettes. Leverages all of the marketing done by the name-brand tobacco companies. Low production costs. Addictive product. Brilliant.

 

[brewer12345]

I have seen it done as an outsider (accounting firm I was with handled the financial statement aspect of several IPO's, secondary offerings and convertible debt while I was there).  Those who are connected don't even struggle to raise needed funds. 

Have you been involved with any?  If so, your advice might be useful.  I suspect you have not, making your suggestion just friendly message board banter.

Dave:

I have absolutely no interest in getting involved in the pissing contest going on here, but I did run across something that might interest you: http://www.bankipo.com/
The people who run that site appear to offer services/help to get a start-up bank off the ground. I personally think that if you want to start from scratch, it makes more sense to do a bank rather than an insurance company. I have invested in a community bank in the past (SHRC) and it is potentially a winner, especially for the sponsor. I think that a state chartered savings bank is eminently doable. Also likely saleable to a larger entity at 2+X book value after, say, 5 years.

 

[justin]

Dave,

You lack ambition. You lack a business plan. So do I. It is easier, in my opinion, to be a wage slave, save your fortune up ("f*** you money", as I've called it before), and ER. It doesn't take a genious to do it.

If you really wanted the money to start an ins. co., you could find it. You may not be a national company at first. You may start with a state or two. If you had a solid, viable business model that would generate excess cash flow to cover a multiple of your debt service, you could get the money. You don't have to go to Goldman Sachs or JP Morgan. There are tons of smaller investment banks around the country. I was just talking to some guys from Paragon Commercial Bank that do similar types of deals (nonstandard commercial lending). www.paragoncommercial.com

You'll have to look professional, have a rock-solid business plan, know your industry, have an excellent resume, you may even have to have some capital of your own to contribute to the deal. It really isn't that hard to get your foot in the door at some place to get a small business loan. If you're talking about borrowing $100,000,000, it won't happen. A few million, sure.

That being said, I have no clue as to the operating fundamentals of an insurance company. If the business model works, you can find money for it, assuming you can persuade someone you can make it work.

Find a law firm to get you money. http://www.hutchlaw.com does just that. A buddy from law school is an attorney there. I've talked to the founding partner, a real nice down to earth guy. They can get you money or point you to a place that can get you money if you are serious about it.

 

[brewer12345]

Dave,

You lack ambition.  You lack a business plan.  So do I.  It is easier, in my opinion, to be a wage slave, save your fortune up ("f*** you money", as I've called it before), and ER.  It doesn't take a genious to do it. 

If you really wanted the money to start an ins. co., you could find it.  You may not be a national company at first.  You may start with a state or two.  If you had a solid, viable business model that would generate excess cash flow to cover a multiple of your debt service, you could get the money.  You don't have to go to Goldman Sachs or JP Morgan.  There are tons of smaller investment banks around the country.  I was just talking to some guys from Paragon Commercial Bank that do similar types of deals (nonstandard commercial lending).  www.paragoncommercial.com 

You'll have to look professional, have a rock-solid business plan, know your industry, have an excellent resume, you may even have to have some capital of your own to contribute to the deal.  It really isn't that hard to get your foot in the door at some place to get a small business loan.  If you're talking about borrowing $100,000,000, it won't happen.  A few million, sure. 

That being said, I have no clue as to the operating fundamentals of an insurance company.  If the business model works, you can find money for it, assuming you can persuade someone you can make it work.

Find a law firm to get you money.  http://www.hutchlaw.com does just that.  A buddy from law school is an attorney there.  I've talked to the founding partner, a real nice down to earth guy.  They can get you money or point you to a place that can get you money if you are serious about it. 

You can't borrow the capital reqired to start an insurance company. It has to be most or all hard equity. Remember, insurance companies are all about bearing risk. That is not the province of creditors/bondholders. Furthermore, you need a lot of equity. Insurance is a scale business, much more so than banking. You might find some little niche that wouldn't require a huge investment (maybe pet health insurance or legal insurance), but it would be a stretch.

 

[justin]

You can't borrow the capital reqired to start an insurance company. It has to be most or all hard equity. Remember, insurance companies are all about bearing risk. That is not the province of creditors/bondholders. Furthermore, you need a lot of equity. Insurance is a scale business, much more so than banking. You might find some little niche that wouldn't require a huge investment (maybe pet health insurance or legal insurance), but it would be a stretch.

Get an accountant. They can make your balance sheet look like regulators want it to. Get equity partners. Getting a loan isn't the only way to get money. It may be expensive money, but that is a business fundamentals issue, not a "the man is holding you back" issue.

Again, I have no idea about how to run an insurance company. I did look into starting a bank a while back, and it seemed relatively easy. I think you'd need a few million, at least around my locality. Not sure about financing that. Obviously, you'd need some expertise in the banking industry.

 

[brewer12345]

Again, I have no idea about how to run an insurance company. 

I'd have to say that is eminently clear.

FWIW, I think abank is a lot simpler animal and much quicker and easier to start. Having said that, millions in quity capital and partners with banking experience don't coalesce from thin air. You need connections and relationships to find the money and expertise, and the man on the street will have a tough time indeed.

 

[justin]

I'd have to say that is eminently clear.

Ha ha.

Dave said he had the know-how to start and run an insurance company. Only thing he was missing was $20 million. I don't think that amount of money is required to start an insurance company.

From what little I know, a bank would be easier. Although with the secondary reinsurance market out there, I don't imagine making money and diversifying risk would be that hard for a geographically concentrated insurance company.

...millions in quity capital and partners with banking experience don't coalesce from thin air. You need connections and relationships to find the money and expertise, and the man on the street will have a tough time indeed.

That is true with any business. The amount of connections you need for some businesses are minimal, for others, great. Expertise required for some businesses, minimal, for others, huge.

The man on the street can pick up skills, he can make connections. I'm just a man on the street, and I could get the connections to do whatever I needed. I'm not saying it is easy. In fact, it can be rather difficult. If it were easy to get rich, everyone would be rich!

Go to college, work your way up in an existing bank. Figure out how to start your own. Make the connections. Make the leap, start your bank. It may take you 20 years before you can start your own bank, but it is possible.

 

[Gone4Good]

Wow! I guess the man is really holding everyone back. Just think that you actually need money, of all things, to start up a bank or an insurance company. I guess the next thing they'll tell me is that I need a few cases of wine and spirits to open my liquor store - capitalist pigs!

 

[Gone4Good]

Although with the secondary reinsurance market out there, I don't imagine making money and diversifying risk would be that hard for a geographically concentrated insurance company. 

Yup, I hear the geographically concentrated Mutual of New Orleans is thriving.

Lets face it guys, in some businesses scale is important.

 

[laurence]

Wow! I guess the man is really holding everyone back. Just think that you actually need money, of all things, to start up a bank or an insurance company. I guess the next thing they'll tell me is that I need a few cases of wine and spirits to open my liquor store - capitalist pigs!

 

[Mr._johngalt]

Get an accountant.  They can make your balance sheet look like regulators want it to.  Get equity partners.  Getting a loan isn't the only way to get money.  It may be expensive money, but that is a business fundamentals issue, not a "the man is holding you back" issue. 

Again, I have no idea about how to run an insurance company.  I did look into starting a bank a while back, and it seemed relatively easy.  I think you'd need a few million, at least around my locality.  Not sure about financing that.  Obviously, you'd need some expertise in the banking industry.

Briefly...........you all know I am partial to real estate. One reason is
you can do big deals with -0- OOP (out of pocket) cash. But...........
I could do the same thing with lots of other businesses. You have to be
creative and have knowledge of the business, but "no money down"
deals (100% leverage) are done every day, in many venues. Believe it.

JG

 

[Gone4Good]

Deposits and capital requirements for both banks and insurance companies are enormous and unnecessary and were created by politicians with campaigns funded by and benefiting the capitalists who put them there (when was the last time you heard about an insurance company or a bank going under due to undercapitalization or a lack of statutory deposits held by the state?).  

This is kind of a circular argument considering that the reason you don't hear about bank insolvencies too often is because they ARE adequately capitalized. I guess one major S&L bailout in the past 20 years is probably enough.

You could very well be right that banks are OVER capitalized. But you will excuse me if I leave my deposits with my OVER capitalized bank instead of Dave & John's 100% levered one. And I don't mind that depositors and / or shareholders have to pay for extra capital in exchange for the FDIC insurance they receive courtesy of my hefty tax dollars.

 

[justin]

Yup, I hear the geographically concentrated Mutual of New Orleans is thriving.

Lets face it guys, in some businesses scale is important.

A risk of doing business. They could have reinsured against many of their losses. If they didn't, competition will take care of their absence from the market. Hopefully the minimum capitalization requirements will cover most of the claims of their policyholders.

Many types of businesses are worse off than insurance companies in terms of geographic concentration risk. Think of retailers. There is no way a chain of retailers in, say, the New Orleans area could diversify away their geographic concentration risk. Well, maybe business interruption insurance.

 

[brewer12345]

Ha ha.

Dave said he had the know-how to start and run an insurance company.  Only thing he was missing was $20 million.  I don't think that amount of money is required to start an insurance company. 

You're right. I would guess that it would take at least $100 million of equity capital to make a realistic go of it.

It is not easy to diversify away geographically concentrated risk. Most reinsurers are not eager to take a book in a catastrophe-prone area, so either they walk away or they charge a lot. If you are running a small company, guess who has the upper hand? So either you take a huge amount of risk or you pay up and say goodbye to your profits. This just isn't a game for small players, and it is only partally due to regulatory impediments.

 

[wildcat]

I have missed some of the forum as of late so when I opened up this thread

Well, I don't want to ruffle feathers but I guess I am too young to accept the dark realities that may exist in the US. I don't want to believe the corporations rule and the government caters to the rich. I guess that is naive but it still makes me want to be more than a bitter employee, a possibility that still exists in my world.

 

[justin]

You're right. I would guess that it would take at least $100 million of equity capital to make a realistic go of it.

It is not easy to diversify away geographically concentrated risk. Most reinsurers are not eager to take a book in a catastrophe-prone area, so either they walk away or they charge a lot. If you are running a small company, guess who has the upper hand? So either you take a huge amount of risk or you pay up and say goodbye to your profits. This just isn't a game for small players, and it is only partally due to regulatory impediments.

You may be right. I don't agree with your summary of how things would play out. I've never started an insurance company, and I doubt you have either. You are citing lack of a profit potential as a reason why the business wouldn't work. I think that would be a valid reason to not start a business. The idea that "the man" is conspiring against you isn't. I'm not necessarily directing that last statement towards you, but rather the conspiracy theorists that posted on this thread earlier.

 

[Nords]

which to me is simply not acceptable in a country that bills itself as the 'greatest country on earth.'

Hunh. I interpreted that billing from a military perspective.

You want the happiest place on Earth, go to Disneyland.

 

[cute fuzzy bunny]

You wont be so happy after you see the ticket prices and long lines...

 

[wildcat]

Point taken Dave. Obviously you have been through some bad experiences. I guess you can either have the glass is half empty or the glass is half full perspective.

 

[laurence]

It's probably worse than you think it is. Just think about what would happen if you wanted time off (beyond the two weeks most companies give). I'm talking about a month or two to spend some time with an aging parent, go on a missionary trip, provide meaningful help at your kid's school, mend a marriage or help disaster victims. The consequences are dire in a capitalistic environment. The need for time off wouldn't be so dire (for me anyway) if there were more than three holidays between January and November. Government workers and banks get more than three but for the rest of the US corporations, three seems to be the standard. The nine we have in total is fewer than any industrialized nation in the world... which to me is simply not acceptable in a country that bills itself as the 'greatest country on earth.'

People value money over time in this country, just different cultures. Easy for me to say, I get 4 weeks paid time off at current job.

You are allowed to take leave for some of the things you mentioned above. DW took 3 months off when our daughter was born. Our company is moving to a 9/80 by the end of the year, so I'll have a 3 day weekend every other week....I think things are changing in the direction you desire.

 

[azanon]

I'm 49 now and have been retired for 11 years. My retirement portfolio has grown five-fold over that time while my annual living expenses have increased a bit more than 50%. My annual withdrawal rate is about 1.5% of assets today.

Well, i'm not going to try to explain/understand this since i dont know the real numbers, and no i'm not asking you to give them out.   Meaning, if i were worth 10mil, i could easily live off of 1.5% of assets too, while growing the portfolio 5 fold, had i retired in the early boom boom 90s.   Had you been in tech during the entirety of the 90s with a moderately sized portfolio beginning in 1990, you could easily have had a sick amount of money by the turn of the century assuming you had the foresight to cash out around 1999.   For the curious, plug 1 million at 25% average annual return for 10 years and see what you come up with. (just ballpark guess of return in tech from 1990-2000)

But for most people, retiring in their mid-30s is going to be risky business and you would have a tremendously hard time finding a financial advisor, or any well known Guru, such as Berstein, who would advocate such an approach.   This is where i fall into the large majority.  The worst part too probably isnt the real risk being taken, but the perceived risk you get to dwell on each and every day.

But i do like the concept of this website and the positions it supports.  The main tradegy that goes on is those that work until they drop, live at or above their means, and are not consistently improving their net worth.   I'm an exercise and health nut, so if i retire in my mid 50s, i have a reasonably good chance to expect 30 years, maybe more of freedom from the workplace.   And i can do that with a relatively healthy sum of money because I am choosing to work a reasonably long enough time to see some powerful effects of compounded growth in retirement vehicles.

I bought DELL and PFE in the early 1990's.

Up until I retired in 1994, my portfolio had only beaten the S&P500 by about 1.5% per annum. It didn't really take off until after I retired.

intercst

Just saw this.  Ok so intercst is basically an outlier.  Heck, i'd retire too had I owned dell through the 90s.  Cudos on that!

Now for us normal, not so lucky folks, Bersteins advice was..... =p