brewer12345
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
- Joined
- Mar 6, 2003
- Messages
- 18,085
Insurance companies should be affected by CDO failures, but the difference is that in the case of insurance companies, comparatively, more regulations are in place to curb such risks. There are capital requirements. The types of investments that may be done are also governed. There are reinsurers, guarantors and shareholders to share the risks. There is a constant flow of funds in the form of premium payment by policyholders. These make insurance companies safer than those other institutions (eg ordinary trading companies) that don't have these, or are not required to have these. Theoretically, the only risk-free investment is government bonds, because the government can print money. Beside this, all other investments carry some risk in different degrees. So the meaningful argument is not to find a 100%-risk-free non-government-bond investment. It's meaningful only if it's about risk management. In this case, diversifying a portion of your nest egg to high-quality annuities is a calculated risk. Putting everything into uninsured portfolio of stocks and bonds may not be a good idea from the perspective of sound risk management.
Sweetheart, I have probably forgotten more about life insurers than you ever learned. I have definately seen enough of them from the inside to be very, very particular about which ones I would take exposure to and very skeptical about the value of many insurance products. While there are a lot of safeguards set up, things are not as cut and dry as you suggest.