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Is this the dawn of a potentially catastrophic insurance bubble?

Lloyds of London chairman John Nelson issued an eerie warning on Wednesday. The huge amounts of money flowing into the insurance industry right now “on a scale not seen before” (paywall), he suggested, could pose a systemic risk to the financial system. ”We all vividly remember the systemic problems that arose in the banking industry, where capital became detached from the underlying transaction of risk,” Nelson said. “The insurance industry must avoid these traps.” So is this the dawn of a (potentially catastrophic) insurance bubble?

capital invested in reinsurers

Capital invested in reinsurance—in which investors or companies provide capital to insurance companies, betting that most claims won’t be filed—has increased at a rapid clip since 2008.Aon Benfield

It’s little surprise that money is flowing into reinsurance, the business of buying up the debt of an insurance company. Essentially, reinsurance is a bet that a segment of the companies or individuals being insured (by investors or other insurance companies) won’t file claims during a certain time period. It’s an attractive area for several reasons: Money managers have had a hard time gaming the equity markets; for example, hedge funds haven’t convincingly beat the S&P 500 since 2009. Low interest rates and monetary easing around the world have left investors desperate for yield. And many investors have mistimed investments thanks to erratic moves by central bankers and policymakers.

In a murky market environment, investing in disaster can seem like a smarter bet. Investing in reinsurance debt securities like catastrophe bonds (which bet that homeowners or companies won’t file claims that exceed a certain amount of money) can yield as much as 7% to 8% for three years, compared to the approximately 3% you might earn investing in US Treasurys now for the next 10 years.

“Reinsurers have begun the process of incorporating these new capital flows into their capital structures and we expect the pace of these activities to increase,” Aon Benfield, one of the world’s largest reinsurers, said in its June to July 2013 updateon the insurance market. Capital invested in reinsurance increased by 2% in the first quarter of 2013 alone, and increased by 11% over the course of 2012. Hedge funds and pension funds alone invested $35 billion in the last 12 months.

The worry is that new investors won’t understand the risks that accompany investing in insurance, and that they’ll invest far more money into it than they should. Individuals and companies—particularly those affected by disasters—do occasionally file claims en masse. Investors who become convinced that these investments aren’t that risky could be in for big losses.

 But would this distortion in risk produce losses that rival the financial crisis? It’s unclear. First, it would take serious losses—perhaps a series of big catastrophes—for investors to lose a lot of money from reinsurance. It’s also worth noting that the size of the global reinsurance industry is about a quarter of the size of the market for US mortgage-backed securities. But the more the world grapples with rising seas, harsher weather and an unprecedented number of natural disasters, the likelier big losses become.

 

 

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Areas Of A Business That Need Attention When The Time Comes To Expand

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There is no denying that one of the most difficult ways to earn a living in this country and in this day and age is to run your own business. There is so much you need to know in order to make it all work successfully and even if your knowledge of business is sound then it is just the endless amount of competition out there already that you will have to get the better.

Having said this, with the right product or the right service for sale and a good team underneath you there is argument to say that this is the best way to make a living. After all, at least you have your destiny in your own hands. There’s hundreds of horror stories on the news at the moment of what were believed to be successful money making businesses being forced into drastic redundancies and downscaling. It is these kinds of stories that are enough to lead you to put your faith in yourself instead of into others.

One of the most important things in running a successful business is to know when to take your opportunity. At times it is incredibly scary to take that first plunge or to make that initial investment but it is essential that you do not let the fear get the better of you. It is vital that you take your chances when you can, that invest in the things that need investing in.

One make or break decision that you will inevitably come to at some point, if your business is doing well, is when to make the move to expand your operation. This is one of the scariest things that you could ever do and is a decision that can ultimately spell the end to your company. This is why it is so important to take your time but also to act at the right time to make the changes that will shape the future of your company.

When you do decide to expand your company these are the things that you need to consider:

  • Location – You may feel settled in the surroundings in which you set up your business in the first place but don’t be scared to consider upping sticks. This is a big decision but once you have researched your target audience thoroughly then it may soon become obvious that you need to relocate to increase sales for your business.
  • Office size – If you are thinking of relocating then it may also be advisable to consider up scaling your office. Even if you have decided not to invest in any more employees at the time it may be a good idea to invest in the future expansions that you are, no doubt, confident in doing in years to come.
  • Products and services – No matter what line of business you are part of if you are going to expand then it may be worth considering taking on new products or services that your company can offer. Remember it takes money to make money, as scary as that is.
Featured images:

Guest post contributed by Simon Jones, a business consultant based in Manchester who specialises in helping SMEs expand their overall business capabilities in a safe & sensible manner. Simon often uses ideas such as corporate switch boards, to help deal with the increase in telephone calls & use, using companies such as Moneypenny

 

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The Essential Guide For New Landlords

Investing in rental property remains popular in the UK with more and more of us deciding to buy a second property in addition to the family home. It’s easy to think that if you have successfully purchased your own home you know what you’re doing when it comes to buying a second property. However, buying a property with the sole intention of letting it to tenants brings unique considerations and should be viewed with a different frame of mind.

When you buy-to-let you are embarking on a business venture and as the demand for rental property continues to grow, so too does investment in this sector. There are some key steps you can take to maximise success and minimise risk when entering the buy-to-let market and ensuring you are well informed before committing your resources will allow you to make sure you are suited to this diverse sector.

The Rental Market

When looking at potential rental properties, remember that where you would like to live is of no importance. Ask yourself what renters will be looking for and choose a property based on local research and business principles. Renters typically want to be close to local amenities and be walking distance from public transport links. Speak with several letting agents to determine the area and type of properties that local renters are interested in.

Mortgage Advice

Choosing the best mortgage for your buy-to-let property is essential to your success. Seek professional advice from an independent mortgage advisor who can access a broad range of products. This is more advantageous than simply speaking to your local bank or the provider of your own home mortgage as there are many specialist companies who offer mortgages specifically tailored toward the buy-to-let market.

Get Organised

Becoming a landlord can be exciting and rewarding, but there is also a lot of legislation in place to ensure that landlords act responsibly and that tenants are safe. As a landlord you must make sure your property is habitable and that any furniture conforms to fire and health and safety regulations. You must also have an up to date gas safety certificate and ensure that all appliances are in good working order. You must register with a tenant deposit scheme and carry out a full inventory for the property before letting it to tenants. It’s also advisable to vet potential tenants and seek references from past landlords. Building insurance is a mandatory requirement and if you are renting out the property furnished you should also insure the contents against theft and damage.

Think Long-Term

Investing in rental property is not a guarantee of overnight wealth. You must factor continued demand, interest rates and repairs into your investment. Appreciation of the property is likely to be slow and it’s sensible to evaluate why you are choosing to invest in property and how long you plan on holding onto a property. There are tax advantages to keeping the property for at least 10 years, but if you think you may want to sell before that period, ensure you have a plan for paying-off the mortgage.

Safeguard Your Investment

Experts recommend saving at least eight weeks of rent payments to cover immediate expenses such as boiler repairs and it would be wise to save a significant portion of any money left over after paying the mortgage to ensure you have an emergency fund for unforeseen costs. Additionally, you should also maintain the condition of the property. An attractive property will let faster and tenants are more likely to stay in the property if appliances are kept in good working order.

For more information get expert advice here.

 

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What is human capital?

Investing In Human Capital Results In Long-Term Returns

Human capital is often discussed in business and political discussions and considered a well-known parameter in conversation. But just what is human capital and is it strictly a business term or can it be applied in other aspects of everyday life? Human capital is quite simply the investment and the return on people producing a valued product in the market place. And just like a large piece of machinery or a piece of real estate, human capital must be developed, sustained and managed carefully for the maximum return on the investment.

Investing In People

There is a general rule in business that whenever a new employee is hired the business will lose money with the new worker for a certain amount of time. Whether it’s a few days or a few months, there is an investment in the employee to teach, train and instill the business philosophy of the new job. Employers take this loss as a cost of doing business but anticipate the long-term return to eventually far exceed the temporary loss. This is the basis of all capital investment: putting money in to see it grow and return profits later.

Managing Human Investments

As with any investment there are managers who apply certain conditions and processes leading to a fulfilling relationship for both the employee and the employer. Human capital consulting with professional human relation specialists will lead to a better work environment, incentives for greater production and eventually a seamless work flow with all involved engaged in increasing the business’s bottom line. Human capital consulting with both business owners and employees allows for more feedback as to what works and what is not as effective. It’s difficult to apply specific criteria to all businesses and adaptability is key to effectively managing the workforce.

Incentives

Over time businesses have also learned their capital investment in people involves additional rewards other than just money. These include the well-known job perks of paid vacations, health insurance, satisfactory overtime compensation, bonuses, family time allowances and breaks during the workday. Whether a factory floor worker or a commissioned salesman out on the road, the means to manage human assets remains constant. Applying additional compensation for the employee is much like upgrades and regular maintenance to existing machinery or other production assets: increasing productivity and reducing friction. Also, these benefits lead to greater retention with existing workers. This means a greater return on the initial investment while avoiding the expected loss of hiring a replacement worker and starting the process over of training and familiarization with a new job.

Fokal Fusion is a boutique “non-consulting” consulting firm. Located in Houston, TX, Fokal Fusion works alongside with our clients to determine the problems and then get to work to get the job done.

 

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Use Your Time During The Housing Market Slump To Revitalize

 

Your home is probably the biggest investment that you have, even though the market has been rather sluggish these days in the real estate sector. But it’s a virtual certainty that eventually the bear housing market will evolve into a certified bull market, and every bit of improvement that you put into your property will pay off in the long run.

Many people will use this opportunity in the down market to fix the things that are slightly off kilter. You could reason that it’s a bad idea to sell in a down market unless you absolutely have to, that is, because you won’t realize the full value of your investment. So instead of quickly putting a piece of property on the market, it just might be a better idea to plan ahead for sunnier days and get the house fully ready for the eventual day when you will put it on sale.

Leasing Out A Property

Even if you’re just planning to lease out a property rather than sell it, you can realize a greater profit on your home if it is kept in good repair and is attractive and clean. After all, you wouldn’t want to move into a home that was in disrepair and was unpleasant to look at.

You can start to improve the appearance of your home by working on the outside, which is the first thing every potential buyer or leaser will see. It pays to keep the grounds and façade of your home in good shape, because, as the old saying goes, you only get one chance to make a first impression.

Taking Care Of The Deck

That can mean taking care of such details as deck balusters to make sure that they are painted and in good repair. It is often the details of the home than can make or break the appearance of the home to first-time visitors.

Of course, you’ll want to keep the exterior of your home in good painted or stained condition. If you keep worn, weathered surfaces at bay, you’ll have an overall better looking home, and one that will hold more value than a piece of property that has been allowed to deteriorate.

Taking Care Of Architectural Details

You’ll want to take care of architectural details, such as window frames, railings and porch columns, which also contribute in a substantial way to the look and feel of your home’s exterior.

Once you get the exterior of your home looking the way you’d like, you can always spend time working on the interiors, perhaps redoing paint and wallpaper that might be a little bit worn. Some new lighting fixtures can give a room a new, revitalized feel.

Consider all of your options as you begin to redecorate and remodel, and think of it all as an investment in the future.

Eric Blair writes about architectural design and different exterior design elements such as balusters that make a big difference when selling the property.

 

 

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What Does Deal Flow Mean to Private Equity Investors?

Private equity investors use the term deal flow to describe the prevailing rate of opportunities for investment.  Deal flow software can help investors both decide on whether to make investments and monitor existing investments.

What investors look for

Investors can use a deal flow software to monitor their existing investments as well as gain guidance on potential new investment opportunities.  Deal flow is measured simply as healthy or poor.  The rate of deal flow is determined purely by the level of good investment opportunities and returns,  Deal flow software helps private equity investors monitor this.

Deal flow software aids both individuals and groups with private equity investments generate good investment opportunities with the potential for a clear return.  Investors are looking for a healthy deal flow throughout their investments.  With a healthy deal flow investors will expect an equitable result from the initial investment against the amount ultimately earned.

Healthy deal flow

Private equity groups make investments with a clear strategy in mind.  Investors will often make separate investments to separate sectors in an organisation.  For example, directing their resources directly to consumers or liaising with suppliers can help private equity investors attain some security on their investment.

Deal flow has recently been very good due to the high level of entrepreneurs and private equity investment businesses against falling levels of venture capitalists.  Deal flow software helps potential private equity investors analyse and identify healthy trends quickly in order to make investments with a great chance of delivering high returns.

Where to find deal flow software

As the private equity market continues to grow, more and more examples of deal flow software are becoming available online.  Deal flow software is great for helping individuals and private equity investment firms make decisions on investment.  Deal flow software should not be used as a definitive decision making tool, but should be used to analyse potential gains from an investment and form a part of a private equity firms’ investment decision.



One of the most excellent and effective deal flow software tools is available completely free of charge from Dealmarket.  Their cloud based software, called MyOffice, enables private equity investors to organise and view all of their deal flow information in one accessible place.  The MyOffice deal flow software available from Dealmarket allows both individuals and private equity investors to search and compare investment opportunities and rate the best deals.  As MyOffice deal flow software is cloud based, there is no need to download any software as all of your investment information is stored securely online.  MyOffice utilises banking industry encryption standards to ensure 100% security at all times.

Dealmarket is a recent start-up company that offers a more efficient and accessible private equity marketplace and cutting-edge deal flow management tools.

 

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