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Insurers: Too Big to Fail?

July 17, 2013 By E.J. Smith - Your Survival Guy

Insurers are now being added to the “too big to fail” list by Financial Stability Oversight Council created by Dodd-Frank. The Editors of The Wall Street Journal explain how ridiculous the idea is. Why would government put taxpayers’ dollars at risk like this?

Insurers, by contrast, match long-term liabilities with long-term assets. Premiums to cover some event likely to occur decades in the future are invested in assets of a similar duration. There is little risk of a “run on the bank” because policyholders, unlike depositors, typically cannot demand the face value of their policies in cash. Tornadoes, car accidents and terminal cancer do occur, but they don’t occur everywhere at once, and they are not triggered by a panic in financial markets.

Insurers can fail, but since customers cannot immediately demand their money the way bank depositors can, the failures tend to play out slowly over many years. States also typically require insurers to contribute to a fund to make up for the shortfall if one of them fails and its assets and liabilities don’t match. Without the same immediate demands for cash as at a bank that’s heading south, there is less risk of an asset fire sale that could roil markets.

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E.J. Smith - Your Survival Guy
E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. His focus at all times is on preparing clients and readers for “Times Like These.” E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998.

E.J. has trained at Sig Sauer Academy in Epping, NH, NH, where he completed course-work in Practical and Defensive Handgun, Conceal Carry Pistol, Shotguns, Precision Scope Rifle and Kidnapping Prevention.

E.J. plays a Yamaha Recording Custom drum set with Zilldjian cymbals. His first drum set was a 5-piece Slingerland with Zilldjians. He grew-up worshiping Neil Peart (RIP) of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris.

Please get in touch with E.J. at ejsmith@yoursurvivalguy.com
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