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Comment: Re:Both of you are off the mark (Score 1) 238

by alexander_686 (#48860471) Attached to: Google Thinks the Insurance Industry May Be Ripe For Disruption

You can read the above threat for the ongoing argument between myself and others.

In short, by value or by risk weighted value, most life insurance products are annuities. a.k.a. private pensions. These pay cash for as long as you live. If life expectancy were to increase, the amount of cash needed would increase. This would tap the reserves of the insurance company.

On the flip side, increasing life expectancy would help the insurance companies with term or whole life insurance – the type of insurance that pays out when you die.

Which takes us to risk, because the risk of people dyeing too soon and dying too late is not the same. What is the chance that a large number of people will all of sudden die 5 years early? Maybe people in their 70s will take up smoking and skydiving. What is the chance of people dying 5 years longer? Maybe some medical breakthrough? Most of the surprises have been in people living longer, not shorter lives.

Comment: Re:Both of you are off the mark (Score 1) 238

by alexander_686 (#48860245) Attached to: Google Thinks the Insurance Industry May Be Ripe For Disruption

For term life you absolutely care about the financial stability of the company. Term life isn't "short-term" like 6 months, it's "short term" like 10-20 years. Property insurance is typically a 1 year term and the difference between a company that looks like it will be able to pay it's bills for 1 year versus one that can pay for the next 20 is huge. Just ask pets.com.

As you point you, who know what the future will bring? Volatility is an insurance company's enemy. Take a look at the volatility of the actuary tables over the past 20 years for middle aged adults. And we see almost no change. But we also need to protect the premiums for the market risk of Pet.com from blowing up. However, rates are calculated using 20 year government bonds with no inflation protection, so low risk there. Capital requirements tend to be low because of the low risk. So yes, 10 to 20 years in short term in insurance lingo for such a dull boring product. Well, maybe medium term.

Your understanding of whole life is totally incorrect. Whole life is a life insurance policy that does not terminate after a set number of years; rather, as long as you can cover the cost of premiums, it continues to be in force. An annuity is an entirely different product (although it can also be sold by insurance companies).

Technically you are correct, but I alluded to that. Ask people on what they have got and most will answer whole life. Peak underneath the hood and 9 times out of the 10 you will see that the majority of the payments going towards an annuity.

As for dying in year 29 of the 30 year term policy, he is referring to the fact that since you are still in the term, you should get the death benefit (whether you paid as a single premium or annual premiums is not so important). The problem is if the company goes bankrupt in year, say, 24, then you don't get a death benefit. True, you aren't on the hook for premiums after the company goes belly up, but if you get 30 year term insurance as a healthy 35 year old, then the company goes bankrupt after 24 years (when you are 59), you are in big trouble. You were paying relatively cheap premiums that took into account that you have been paying since you were 35, but now you have to go find another company and get a new policy, now as a 59 year old. And if you have developed health issues since then it's even worse.

Technically you are correct here but reality is different. Rates are calculated using actuarial tables and long dated government bonds – both are low risk. State regulators require reserves and segregated risks. I can't think of the last time an insurance company got into trouble for writing term or whole life insurance. When AIG blew up it did not affect their whole life policy holders because of the safe guards in effect. Once again, a low risk, low capital line of bossiness.

Now, take a look at the average life insurance company. For "Life" products, annuities and the like dominate the balance sheet. Often by a factor of 10. While I can't think of an insurance company that has gotten into trouble over their term or whole life, there have been many companies that have had issues with their annuities and long term care. Actuarial tables have not moved much for middle age individuals – not many die. Figuring out when old people is harder and most of the risk here is that people will live longer, not shorter. This helps the whole life side but that tends to be the smaller side.

Comment: Re:Both of you are off the mark (Score 1) 238

by alexander_686 (#48859229) Attached to: Google Thinks the Insurance Industry May Be Ripe For Disruption

Life insurance can be broken down into 2 major types.

The first is "Term Life". You agree for a term of X years – let us say 10. You pay a premium. In return, if you die, your heirs get a big payout. This is what you are talking about, and you are ½ right. In this case the insurance company wants you to live a longer life. However, it operates more like property insurance because it is short term so the need for financial stability is less.

The second class is immediate annuities, which most people know as whole life. Immediate annuities provide a cash stream for as long as you live so you can think of it as a private social security plan. You are right that these plans share the same risk characteristics as long term care. However, the annuities business is about 100x as large as the long term care bossiness. If you need payments for 30 years then financial stability is more important.

Now, I am rereading the OP and the need for 30 years of "term" insurance and dying in year 29 and I am getting a little confused. It sounds like he is referring to a 30 year term insurance policy with a single premium but those are very rare in America. That would straddle the line. But I would guess that he is confused on how term insurance with a cash balance works – which is an arcane subject so I will let that slide.

Comment: Both of you are off the mark (Score 1) 238

by alexander_686 (#48858489) Attached to: Google Thinks the Insurance Industry May Be Ripe For Disruption

I will point out that there is a huge difference between life and property insurance. Both are highly regulated.

Property insurance, which includes auto insurance, is about short term risks. They buy reinsurance to protect them against big, one off extraordinary risks. Earthquakes, hurricanes, etc. If they muck up on ordinary risks, such as basic underwriting, they can still go bankrupt and leave you one the hook.

Life insurance is a whole different ball of wax. Their biggest risk is superannuation risk – people living longer than expected. There are a few reinsurance schemas which have just been launched but they are untested. Very much the expectation. Here you do want financial stability.

Comment: Re:Bitcoin (Score 1) 290

by alexander_686 (#48822959) Attached to: Bitcoin Volatility Puts Miners Under Pressure

I would argue that you can't separate the two points. But this may be splitting hairs too finely. I have found many backers of BitCoin want to insist that there is such a thing as inherent value and that all we need is a better system.

"Money" is on my booklist but I not gotten around to it yet. I would counter with "Lords of Finance" by Liaquat Ahamed. It covers the interwar period in Europe and the issues that Central Bankers had because they lacked money because America had sucked all of the gold out of Europe during WWI. I found the tale sobering. Money may not have any inherent value but it is still an important thing to get right.

Or maybe "A Monetary History of the United States, 1867-1960" by Milton Friedman, but that thing can be used as a door stop.

Comment: Re:Bitcoin (Score 1) 290

by alexander_686 (#48822309) Attached to: Bitcoin Volatility Puts Miners Under Pressure

For the record, I don't think it's possible to create a medium of exchange that can't be speculated in. That would require worldwide agreement of every person living and every person yet to be born.

I would disagree, but I think we are on the same page.

A "medium of exchange" is a here and now thing, swapping A for B. I don't need a agreement with some born future person because the transaction is occurring now. These types of transactions can be bullet proof.

My point is that money is and medium of exchange is not money. Money is a medium of exchange AND a store of value. This introduces a time dimension and future values. The reason why money has volatility - and thus can be speculated in - is because it is an imperfect store of value. And in fact, there can be no perfect store of value. Now we need agreements with unborn children. Plus agreements on technology, input costs (no peak oil here), and unforeseen events (e.g. crop failures).

But I do think we are on the same page.

Comment: Re:Bitcoin (Score 2) 290

by alexander_686 (#48821401) Attached to: Bitcoin Volatility Puts Miners Under Pressure

No, it is very possible to make to make a medium of exchange so it can't be speculated in. Almost trivial.

The issue is that for something to be money it must be a medium of exchange, a store of value, and a unit of account. It is the store of value that is tricky. Nothing can be a full proof store of value since value is sitting on the shifting sands of time. Value can never be locked in. What may be plentiful and cheap today may be scarce and dear tomorrow. Taste and wants change. Technology and productivity changes relationships. Wars destroy things of value. This is hard to do.

Comment: Re:It's a con... (Score 2) 109

by alexander_686 (#48782501) Attached to: Cryptocurrency Based Basic Income Program Started In Finland

I am not sure what you mean by "value ", but I am going to make 3 points.

First, does money have value at all? The minority view is the "Metallist" (a.k.a. hard money or gold bugs), which believes that money has (or should) inherent value. The majority view is "Chartalists", which view money as a type of credit – chits to be used for trading and have no value in itself. But this point might be more philosophical than what you meant.
Secondly, there is inflation / (deflation), which is what you are thinking about. That is based on the change for the demand in money divided by the change in supply of money. So you can pump new cash into the system, but as long as the demand for money increases you won't see any change in value. Demand for cash is closely tied to the economy. As productivity grows the economy grows. As the economy grows, demand grows.

Third, there is a subtle but important difference between currency and money. There is about 2 to 3 trillion in United State in "M1" currency. The Federal Reserve has a strong influence over this. But remember, anything that looks and acts like money is money. So the money in your checking account technically isn't currency but it does act like money. So the USD money supply is closer to 12 trillion. I point this out for 2 reasons. First, adding 10m to the money supply via cryptocurrencies does nothing – it is a rounding error. Second, cryptocurrencies are not being treated as real money. You can't readily make deposits at a bank with them, borrow them, sign long term contracts with them, etc. Until that happens cryptocurrencies will remain a curiosity and have little impact on the real economy.

Comment: Re:A bit off topic (Score 1) 213

by alexander_686 (#48781417) Attached to: SpaceX Rocket Launch Succeeds, But Landing Test Doesn't

Maybe. While your points are valid, I would be careful about using the Space Shuttle as a key exhibit because it was the result of a stupid compromise.

The Space Shuttle was designed to land at the Vandenberg Air Force Base, which is much further north than Kennedy. In order to reach that far north the Space Shuttle needed a delta wing and had to come in screaming fast. The civilians at NASA would have preferred a straight wing. While it could not have reach Vandenberg, it was lighter and landing the thing would have been easier since it would have been at lower speeds.

I personally think this one of those stupid compromise decisions that morphed the Space Shuttle from a cheap reliable pickup truck into one of the most complex and expensive machines to run and set back our space program by 20 years.

Comment: A bit off topic (Score 1) 213

by alexander_686 (#48780979) Attached to: SpaceX Rocket Launch Succeeds, But Landing Test Doesn't

I have a semi-related questions – why not add wings and land the first stage like a airplane or done?

Is the extra weight for the fuel needed to land the first stage really that much less than the extra weight for wings? Even if the wings weighted more, I would think that the simpler design would win over. Of course, I am assuming that balancing a multi-ton pencil on a pillar of flame is hard.

Comment: Re:Production (Score 1) 230

by alexander_686 (#48750857) Attached to: AMD, Nvidia Reportedly Tripped Up On Process Shrinks

Of course as industry practice, Apple likely makes component pre-payments based on forecast demand on a discount basis (which gives Samsung funds to finance it), but that's not the same as an equity investment.

When I was talking about "investments" I was actually referring to this type of arrangement. Not all investments have to be equity. Some can be simple short term loans to finance inventory and production. That being said, some of the arrangements can be huge, complex, and multi-year and can get pretty near the line of equity. But if not the marriage of equity at the very least it is a very deep partnership of cohabitation. See GT as an example. Of course, the accountants make sure it never crosses the line into equity – that tends to open a can of worms - and often it must be publicly disclosed.

As for Corning I was a bit lazy when I said that Apple invested billions in Corning – I don't know the exact amount or level of involvement. I do know that Apple did help Corning with cash in order to ramp up production in exchange for a limited time exclusive on the glass.

Comment: Re:Production (Score 1) 230

by alexander_686 (#48749573) Attached to: AMD, Nvidia Reportedly Tripped Up On Process Shrinks

Apple didn't spend their own money on production of their "special" glass (it is purchased gorilla glass 4 from Dow Corning)...
On that whole GT advanced technologies sapphilre disaster, they attempted to purchase their own production labs (and lease them back to GT for production), but apparently that ain't gonna happen now...

That is not true. Apple has invested billions in Corning, Samsung, Foxconn, etc. You have only heard about GT because it blew up.

It is not uncommon for a customer to help finance a vendor's factor. Why should a company (let's day Corning) build a huge, risky, cutting edge factory? It is a huge risk. Why should a company (let's say Apple) design a product around cutting edge technology that might not be available in mass quantities?

So Apple pitches in cash to finance the new factory and in return they get preferred pricing / exclusive rights of the output for 6 to 12 months.

As an example, Tesla's "Gigafactory" is actually a Panasonic factory.

Comment: Re:Samsung? (Score 1) 230

by alexander_686 (#48749425) Attached to: AMD, Nvidia Reportedly Tripped Up On Process Shrinks

Actually, they may not. It boils down to what you define as "Samsung". "Samsung" is a lose collection of companies with crossholdings. IIRC, the fab plants are in a different company than the company that does the cell phones. Besides, just because you can make one bit of the phone (CPU) does not mean are the best at making other bits of the phone. I think they have farmed out the cell network bits out.

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