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Falcons Insurance Company
location: Garhoud, Dubai , UAE
its in the middle of everywhere, aot of foriegerns live there so it would be a good place to do business in.
Nature of business: we take good care of people by taking money and insuring there belongings, and pay back whenever any accident happens.
Activities :
health insurance
car insurance
housing insurance
life insurance
List of financial services:
Direct Debits
Standing instruction
opening account
merchant aquiring service
machine: EFTPOS
Tie-Up: Car Company
Advantages:
getting profit
give confidence to customers because they will not be held responsible
Disadvantages:
Pay back to customers
its in the middle of everywhere, aot of foriegerns live there so it would be a good place to do business in.
Nature of business: we take good care of people by taking money and insuring there belongings, and pay back whenever any accident happens.
Activities :
health insurance
car insurance
housing insurance
life insurance
List of financial services:
Direct Debits
Standing instruction
opening account
merchant aquiring service
machine: EFTPOS
Tie-Up: Car Company
Advantages:
getting profit
give confidence to customers because they will not be held responsible
Disadvantages:
Pay back to customers
Sunday, April 5, 2009
Insurance Article
Financial crises are generally enormously costly, and we are currently in the midst of a crisis that could turn out to be the worst of them all. Evidently, financial crises are the by-product of liberalised financial systems.
Let me state upfront that the answer is not simply to re-regulate and to repress the financial system, as was the case in many countries for many decades after the Second World War. Rather, what has to be done is to find ways to address shortcomings in the current system.
International efforts directed at crisis prevention to date have been largely focused on the health of the financial system, and have been based on the principle of national sovereignty.
That is to say that the procedures suggested for international implementation have been agreed to by committees of national 'experts', working to produce a 'level playing-field'. This work is essentially based on a 'bottom-up approach', which tries to ensure the good health of the various pillars that make up the international financial system.
In recent years, there has been growing interest in a more 'top-down' approach that emphasises the macroeconomic roots of most national and international economic crises.
The need for sensible fiscal policies has been understood for many years, with the IMF often playing the role of enforcer, particularly in emerging-market economies. This was based on the observation that so many of the crises in the 1960s and 1970s were associated with fiscal excess.
Similarly, in the light of more recent crises, growing attention is now being paid to how credit growth fosters pro-cyclicality in the economic and financial system, through its influence on asset prices and spending behaviour.
To date, however, these heightened macroeconomic concerns have not elicited any serious attempts to establish an international framework for trying to resist pro-cyclicality.
On the one hand, this might seem odd given the accumulating evidence that problems which arise in one country are often reflected in others.
In particular, efforts to peg exchange rates to countries in the 'boom' stage of the cycle will generally import similar symptoms to the pegging country, though here perhaps the simplest answer is to cut the peg.
On the other hand, international cooperation can only happen if the important countries share the same assessment (paradigm) of the underlying problem.
At the moment, there is no such shared assessment, with the Europeans and Japanese being generally more inclined to worry about the monetary and credit cycle, but the US and some other English-speaking countries rather less concerned.
The US authorities, in particular, have been adverse to the suggestion of resisting 'bubbles', preferring for various plausible reasons to clean up the debris afterwards.
Further, among those who share a similar view of the underlying problem, there is still no agreement as to when or how countervailing action might be taken, even at the national level.
For example, views differ as to whether it would be technically possible to gross up (under Pillar 2) the capital requirements estimated under Pillar 1 of Basel II to reflect system-wide variables. At the international level, these kinds of problems become even more difficult.
Finally, there is the 'will to act' problem.
Policymakers at the national level have explicit responsibilities and accountabilities, yet for all sorts of reasons are still often hesitant to tighten. This would be even more the case in international fora where no explicit international mandate exists.
This said, John Taylor of Stanford University has recently suggested an increased degree of international monetary cooperation to resist global inflationary trends, noting that many domestic authorities treat food and energy prices as 'external' even though they are fully 'internal at the global level'.
This kind of thinking gives hope for enhanced international cooperation with respect to other kinds of macroeconomic problems as well.
This evidently leads on to the question of whether more authority should be shifted from the national sovereigns to some international agency that did have an explicit mandate for crisis prevention.
Suggestions have been made that the BIS should become a kind of 'super-regulator'.
Suggestions have also been made that the IMF's role in crisis prevention be enhanced. In particular, the Fund should more actively encourage exchange rate changes to avoid exchange rate crises.
While a far cry from suggestions around the time of Bretton Woods that the Fund take overall responsibility for the growth of the world money supply, it goes in the direction of increasing the IMF's powers.
It has also been suggested in recent years that the Fund play a bigger role in assessing when countries' debt positions (both internal government and net external debt) have become dangerously high. None of these suggestions has so far come to much.
Movement
Why has there been so little movement on this front?First, there is the difficult issue of legalising the mandate. Changes to the Articles of established institutions such as the IMF and BIS are not easy and would take ages. Creating new institutions might be even more difficult.
But perhaps the most difficult issue is that the countries exercising their sovereign power simply do not wish to give it up. This applies to small countries (think of the 'chairs and shares' issue at the IMF) as well as large.
In particular, the US still wields a significant degree of influence behind the scenes, at the IMF and the World Bank in particular, which it does not wish to see diluted.
Let me state upfront that the answer is not simply to re-regulate and to repress the financial system, as was the case in many countries for many decades after the Second World War. Rather, what has to be done is to find ways to address shortcomings in the current system.
International efforts directed at crisis prevention to date have been largely focused on the health of the financial system, and have been based on the principle of national sovereignty.
That is to say that the procedures suggested for international implementation have been agreed to by committees of national 'experts', working to produce a 'level playing-field'. This work is essentially based on a 'bottom-up approach', which tries to ensure the good health of the various pillars that make up the international financial system.
In recent years, there has been growing interest in a more 'top-down' approach that emphasises the macroeconomic roots of most national and international economic crises.
The need for sensible fiscal policies has been understood for many years, with the IMF often playing the role of enforcer, particularly in emerging-market economies. This was based on the observation that so many of the crises in the 1960s and 1970s were associated with fiscal excess.
Similarly, in the light of more recent crises, growing attention is now being paid to how credit growth fosters pro-cyclicality in the economic and financial system, through its influence on asset prices and spending behaviour.
To date, however, these heightened macroeconomic concerns have not elicited any serious attempts to establish an international framework for trying to resist pro-cyclicality.
On the one hand, this might seem odd given the accumulating evidence that problems which arise in one country are often reflected in others.
In particular, efforts to peg exchange rates to countries in the 'boom' stage of the cycle will generally import similar symptoms to the pegging country, though here perhaps the simplest answer is to cut the peg.
On the other hand, international cooperation can only happen if the important countries share the same assessment (paradigm) of the underlying problem.
At the moment, there is no such shared assessment, with the Europeans and Japanese being generally more inclined to worry about the monetary and credit cycle, but the US and some other English-speaking countries rather less concerned.
The US authorities, in particular, have been adverse to the suggestion of resisting 'bubbles', preferring for various plausible reasons to clean up the debris afterwards.
Further, among those who share a similar view of the underlying problem, there is still no agreement as to when or how countervailing action might be taken, even at the national level.
For example, views differ as to whether it would be technically possible to gross up (under Pillar 2) the capital requirements estimated under Pillar 1 of Basel II to reflect system-wide variables. At the international level, these kinds of problems become even more difficult.
Finally, there is the 'will to act' problem.
Policymakers at the national level have explicit responsibilities and accountabilities, yet for all sorts of reasons are still often hesitant to tighten. This would be even more the case in international fora where no explicit international mandate exists.
This said, John Taylor of Stanford University has recently suggested an increased degree of international monetary cooperation to resist global inflationary trends, noting that many domestic authorities treat food and energy prices as 'external' even though they are fully 'internal at the global level'.
This kind of thinking gives hope for enhanced international cooperation with respect to other kinds of macroeconomic problems as well.
This evidently leads on to the question of whether more authority should be shifted from the national sovereigns to some international agency that did have an explicit mandate for crisis prevention.
Suggestions have been made that the BIS should become a kind of 'super-regulator'.
Suggestions have also been made that the IMF's role in crisis prevention be enhanced. In particular, the Fund should more actively encourage exchange rate changes to avoid exchange rate crises.
While a far cry from suggestions around the time of Bretton Woods that the Fund take overall responsibility for the growth of the world money supply, it goes in the direction of increasing the IMF's powers.
It has also been suggested in recent years that the Fund play a bigger role in assessing when countries' debt positions (both internal government and net external debt) have become dangerously high. None of these suggestions has so far come to much.
Movement
Why has there been so little movement on this front?First, there is the difficult issue of legalising the mandate. Changes to the Articles of established institutions such as the IMF and BIS are not easy and would take ages. Creating new institutions might be even more difficult.
But perhaps the most difficult issue is that the countries exercising their sovereign power simply do not wish to give it up. This applies to small countries (think of the 'chairs and shares' issue at the IMF) as well as large.
In particular, the US still wields a significant degree of influence behind the scenes, at the IMF and the World Bank in particular, which it does not wish to see diluted.
We came to think about how the car insurance sector in the UAE was affected by the financial crisis. First we started to research on the internet for articles mentioning how the industry was affected but could not find any. We therefore decided to economically analyze the situation given the current factors and reach a conclusion.
Everyone knows that car sales in the UAE have been hit hard by financial crisis due to low liquidity and lower consumer purchase power. Lower car sales mean lower car insurance sales, meaning that those companies customer base is not growing. Previous customers are now less willing to pay high premiums and are looking for lower premiums. Insurance companies are therefore forced to lower their premiums to provide incentives to their customers; this thereby is going to lower their profit margins.
Hence, has the insurance industry been hit by the financial crisis? Given the analysis mentioned above, yes we do think the industry has been hit and will continue to see doom and gloom until we see a turnaround in the economy.
Everyone knows that car sales in the UAE have been hit hard by financial crisis due to low liquidity and lower consumer purchase power. Lower car sales mean lower car insurance sales, meaning that those companies customer base is not growing. Previous customers are now less willing to pay high premiums and are looking for lower premiums. Insurance companies are therefore forced to lower their premiums to provide incentives to their customers; this thereby is going to lower their profit margins.
Hence, has the insurance industry been hit by the financial crisis? Given the analysis mentioned above, yes we do think the industry has been hit and will continue to see doom and gloom until we see a turnaround in the economy.
2nd Insurance Article
Today's circumstances have echoes of other big financial crises. They are part of a perennial pattern where excesses, usually monetary, cause a boom, in this case a US housing boom, before they finish off with a bust. Boom and bust in the housing market would predictably impact the financial market, as falling house prices lead to delinquencies and foreclosures.
Events now have many similarities to those of the past, but also a few modern twists. The fallout has been augmented by several complicating factors, including the use of sub-prime mortgages, especially the adjustable type that triggered excessive risk-taking.
That was encouraged in the US by government programmes designed to promote home-ownership - a worthwhile goal at the time, but one that in retrospect may have been long overdone.
In many parts of the world, that basic precept flourished on the back of a prolonged period of cheap money and abnormally low interest rates.
Then, via an elaborate network of derivatives, defaults on mortgages spread to financial institutions in the US and across the globe.
The headlines may have been about the slump in the housing market, but the credit losses at big and well-known banks mattered mainly because of their knock-on impact on the real economy through a virulent credit crunch and collapsing equities market.
That is all well-documented history now.
Events now have many similarities to those of the past, but also a few modern twists. The fallout has been augmented by several complicating factors, including the use of sub-prime mortgages, especially the adjustable type that triggered excessive risk-taking.
That was encouraged in the US by government programmes designed to promote home-ownership - a worthwhile goal at the time, but one that in retrospect may have been long overdone.
In many parts of the world, that basic precept flourished on the back of a prolonged period of cheap money and abnormally low interest rates.
Then, via an elaborate network of derivatives, defaults on mortgages spread to financial institutions in the US and across the globe.
The headlines may have been about the slump in the housing market, but the credit losses at big and well-known banks mattered mainly because of their knock-on impact on the real economy through a virulent credit crunch and collapsing equities market.
That is all well-documented history now.
The reason that societies ban pyramid schemes outright, instead of relying on the market to make them unprofitable, is that most people trust their intuition, and their intuition leads them astray. If you were to wait for the market to run its course on a pyramid scheme, the losses could devastate a whole country, as Albanians found out a few years ago.In our days of outwitting casinos around the world, we have come across many people who thought that they also had a great system, but were in fact compulsive gamblers who eventually lost everything. Among the false systems that intuitively feel right, there is none as insidious and deadly as the Martingale, where a player doubles his bet after every loss.The Martingale system works as follows: suppose you need an extra $100. You go down to your nearest casino, and bet $100 on a hand of blackjack, or on any other almost 50/50 proposition. Should you win right away, you have reached your goal and gotten your money. Now if you lose, you bet $200. If you win the second bet, you're up $100 over all and once again successful. But a little more than one out of four times you'll lose both, and end up down $300. In that event you simply bet $400. If you lose again you bet $800, and you just keep doubling your bet until you win once. Clearly you have to win at least once eventually, and with this system you end up with your $100 profit even if you start out losing for a while. If you're willing to bet up to ten times for instance, your chance of losing all ten bets is close to one in a thousand. That means that with a probability of almost 99.9%, you will win one of those ten bets, and therefore walk away with your $100.Of course there's a catch that few people notice. When the unlikely one in a thousand event happens and you do lose ten in a row, the actual amount that you've lost is over $100,000, all risked to win a mere hundred bucks. You might not have any way of doubling up again. You might even need some sort of bailout.In the world of investments, there are many ways more subtle than the Martingale to guarantee a better return over a period of months, years, and even decades, at the cost of certain ruin way down the road. Let's say for instance that you're managing a hedge fund which invests in stocks. Your strategy of sound fundamental analysis is fairly well understood. You have found that you can generate an average return of 6% per year, and so can most of your equally qualified competitors who have access to the same talent pool and knowledge base as you do. But then one of your competitors realizes that he can automatically increase his return to 9% by selling something called "out of the money puts" on the market. This means that the competitor's fund essentially sells insurance against the market crashing dramatically. In normal times his fund will gain the premium from selling this insurance which boosts his returns. However, in the rare event of an extreme market crash his investors will lose everything. This form of Martingale can be easily tuned to work for various time periods with various chances of collapse.When investors see a fund manager generate a higher return that his competitors, they will move their money into that fund and out of the other ones. And money managers are rewarded based on the size of their fund, or the level of returns. The managers do not risk their own money. If they can provide a bigger gain for a few years, they win everything. They might even be lucky enough to be retired by the time their investors are paying the piper. The managers who have the discipline to understand and avoid the Martingale tricks will not be able to compete on the basis of their returns over a few years, and will eventually lose their funds and their jobs.But many people managing large funds are men and women of integrity. They will not willingly expose their investors to total loss in order to line their own pockets with cash. Yet the system as it presently works does not allow them to compete without some kind of trade-off of long term risk versus short term reward. The solution that they usually flock to is to create such a complex Martingale system that they themselves cannot understand the longer term risk implications. As long as the mathematical analysis of the risk of ruin lies beyond the understanding of the CEOs, the money managing organizations can stay competitive by employing their latest version of a return-boosting Martingale, without admitting to themselves or to others that they have been peer-pressured into the financial equivalent of selling their soul to the Devil.In the 80's the emerging Martingales were called junk bonds and LBO's. In more recent times they are known as mortgage backed securities andcredit default swaps. You can regulate mortgages half to death and try to control what kind of risks various kinds of investment organizations are legally allowed to take. You can even forbid short selling and ban golden parachutes. But as long as managers are paid a percentage for managing other people's money, they will compete with each other based on the returns they appear to generate. The pressure to create out-sized returns will eventually force them to invent the latest complex scheme which will have the same effect: eventually the investors lose it all. Complex financial structures will once again emerge that even the best professional investors cannot fully understand. People will always move their money into the places that give the best return over a few years, no matter how many times they are warned with the disclaimer that "past performance is no indication of future returns." And eventually the crisis that results will reach global dimensions beyond the means of a government bailout, especially if part of the risk managing strategy becomes counting on bailouts happening every decade or so.The only solution is to forbid money management as we know it. We could certainly have people like Warren Buffet manage investors' moneyalongside their own, with no additional percent-based compensation beyond their own investment gains. But we must remove the incentive to create Martingales, and protect people from their own intuitive desire to move their money into the funds which generate out-sized returns, without understanding the long term risks which create them.In our globalized free market world, almost everyone is ultimately an investor, whether by owning a house or merely holding a job in a company which depends on access to capital. The scope of the current bailout has reached the point of real danger. We must fix the underlying problem before doubling down again as a society, or risk going the way of Albania.
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