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Is this the dawn of a potentially catastrophic insurance bubble?

By Simone Foxman

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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Lessons Learned From Wealthy Investors

saving-money-how-to-get-richLearning and developing the characteristics of wealthy people is a great way to start fostering your own financial independence and success. Most people who amass an abundance of cash and resources, do so because they have the right personality traits and lifestyle habits. Their ability to remain steadfast in their pursuit of goals and to save what they possess, allows them to enjoy richer, fuller and more stable lives. Following are 3 characteristics of wealthy investors that anyone can pursue.

Investors  Are Optimists

Of the different characteristics that wealthy people possess, contentment is likely the most important. Although many people believe that money brings happiness, in reality, the opposite is actually true. If you can maintain an upbeat state of mind, you will start becoming more aggressive and proactive in your wealth-building endeavors. Those who are perpetually depressed and downtrodden are often too beaten down to even try.

Able To Avoid Impulse Buys

The typical consumerism mentality does not apply to those who are rich. This is because they do not have as many emotional associations with spending. Buying new products is not directly associated with their happiness and thus, they can commit to purchases from a very realistic and balanced mindset.

Conversely, people who are constantly searching for happiness in things are more prone to buying items that they really don’t need or won’t use. For this and other reasons, in order to start generating real wealth and hanging onto it, you will first have to learn how to define the source of your happiness differently. If you can achieve a positive mindset and feelings of contentment without spending, it will be much easier to invest and save.

Perseverance

Wealthy people get where they are because they are willing and able to persevere. In spite of the unfortunate and all too common belief that rich people have it easier, negative developments and events are inevitable for every living being. The ability to rise above these things and to make changes wherever possible, is how people are able to take their proverbial lemons and turn them into lemonade.

Getting Out of Financial Rat Race

Sometimes it seems like you are racing on a treadmill when it comes to paying your debts, you are always trying to pay up your debts with a lot of difficulties but you never get them over you. Getting out of the race may not be as easy as many would think, it requires one to have some skills to be able to pay up the debts easily and live a stress free life.

Here are several  tips from wise investors:

1. You may hide your credit card so as to avoid adding new debts every now and then. You may be in need for your credit card in case of emergency but let it not be as near as being in your wallet. This prompts you to use it in matters that don’t really matter. It will be safer if you leave it in a desk at home or even keep it in a huge block of ice so as to avoid accessing it easily. The point here is that you should avoid having it close to you as this may tempt you to use it.

2. Learn to pay your bills in order of their interest rates. This is recommendable as it reduces the burden that you will have in time to come hence making life easier for you.

3. Ensure that you even pay the smallest balance on every bill and more towards the one with the highest interest rate. This aids in avoiding late fees.

4. Follow up your spending habits within a week and get to know where you use more money on. Each and every one of us buys food but you don’t have to eat each and every day anyway! On tracing your spending habits you will be surprised how it’s possible to cut down on some expenses that are not very necessary.

5. Get rid of the unnecessary expenses and use the saved cash to pay up your bills. Instead of hanging out for a movie, get a free one from the library and so forth. You will be surprised how things will start getting easy on you.

6. You may now pay the next debt after you are through with one with the highest rate. Eliminate your debts one by one and within some short while you will be out of the rat race!

Michael Hastings is passionate about saving, investment and business. He is also a savvy investor who works for Nick Scali, a furniture company.

 

 

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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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