Who Has More Total Reserves The FDIC or All The Insurance Co's

[Guest]

Has anyone done any number crunching to see who has more total reserves, the FDIC or the total reserves of all insurance companies.

I know, like no one has anything better to do than play with numbers.

I don't know where I'm going with this, but it would seem to me that the total reserves of the industry would be larger than the reserves of the FDIC. If that's true then a case could be made for arguing that the insurance industry, since it has more liquid reserve's would be a safer place to put your money. - Amount of Capital

Secondly, if you look at the limits imposed by the various state guaranty associations could a case be made that they are essentially the same as the $250,000 ceiling imposed by the FDIC? - Insured Accounts

Thirdly, assuming that diversification is always better for the safety of your money, could a case be made that it's much safer to put your money with the insurance industry since there's less chance of a group of companies all having a run made on all of them vs. the FDIC getting hit with a run on it's banks.

Like I said, don;t know where I'm trying to go with this except for maybe looking for solid arguments as to why it's safer to put your money in this industry vs. putting in the banking industry.

Comments? Critiques? Criticisms?

 

[djs]

I think this is a faulty arguement from the start. I do believe that insurance companies are pretty safe places to put your money, but hard to think that it is safer than the bank reserves with the FDIC reserves on top of that.

Yes, for your formula to work, you would have to add in the bank reserves as well.

Then you have to look at what that reserve covers, and what the risk to the reserves are. Insurance company reserves are there to cover catastrophic losses. How many life insurance policies were paid out on 9-11? Home insurance reserves are there for things like the wild fires in California, the tornadoes, hurricanes, etc.

Because of the way insurance reserves work, they seem to be very volatile. After Katrina, Allstate had a reserve depletion, they had to stop writing business in some areas (still a solid company). State Farm was recently unable to build reserves in Florida, causing them to announce they are pulling out of the state for home policies.

When insurance companies reserves run close to the limit, they will either raise rates, get more selective in underwriting, or if severe, stop writing new policies for a while. They do this till the reserves are built back up again.

When a banks internal reserves get low, they raise loan rates, tighten up loan underwriting, or if severe, stop making new loans.

So your real question is, which has more money? The federal FDIC or your states insurance reserve. These are the comparable items. I'll take the FDIC any day of the week.

Dan

 

[SportsNut]

My Federal Gov't can kick your Ins Co's azz any day....

I think I saw that on a bumper sticker recently...

 

[patch36]

The insurance companies operate on legal reserves and attempt to have a 100% reserve, whereas the FDIC has less than 1% presently, which is part of the reason the government is looking to prop the FDIC up in recent weeks. The FDIC is NOT the government, it is an insurance company.

If I am wrong, I am sure someone will correct me

 

[SportsNut]

The insurance companies operate on legal reserves and attempt to have a 100% reserve, whereas the FDIC has less than 1% presently, which is part of the reason the government is looking to prop the FDIC up in recent weeks. The FDIC is NOT the government, it is an insurance company.

If I am wrong, I am sure someone will correct me

Technically the FDIC is a separate entity but it is bcked by the... Full Faith and Credit of U.S. Government Behind the FDIC Deposit Insurance Fund

FDIC

 

[Guest]

So your real question is, which has more money? The federal FDIC or your states insurance reserve. These are the comparable items. I'll take the FDIC any day of the week.

Dan

Yes Dan, that does sound like what I was trying to ask in the first argument. But as patch 36 says

"patch36 The insurance companies operate on legal reserves and attempt to have a 100% reserve, whereas the FDIC has less than 1% presently, which is part of the reason the government is looking to prop the FDIC up in recent weeks. The FDIC is NOT the government, it is an insurance company. "

So if the total reserves for the industry are held as cash or liquid investments in order to pay claims whereas the FDIC only has a percentage of what it would need in the event it does get hit it seems to me that having enough cash to pay claims versus only having a % to pay claims would make the industry as a whole safer. And the FDIC IS an insurance company.

Yes we all know that it is backed, as SpotsNut says




SportsNut

Technically the FDIC is a separate entity but it is bcked by the... Full Faith and Credit of U.S. Government Behind the FDIC Deposit Insurance Fund ​

which, if it had to COULD print more money to meet the shortfall. But, therein lies the problem me thinks. The FDIC is NOT required to have the same amount of reserves the industry IS required to have and so at least in my opinion is the weaker of the two. Printing more money to meet debt simply devalues the dollar.

 

[Winter_123]

which, if it had to COULD print more money to meet the shortfall. But, therein lies the problem me thinks. The FDIC is NOT required to have the same amount of reserves the industry IS required to have and so at least in my opinion is the weaker of the two. Printing more money to meet debt simply devalues the dollar.

How are you determining what the appropriate level of reserve should be? Banks and insurance companies both have risks but the level of reserve should be based on respective risk levels. I dont know that we can just look at actual reserve dollars for both and conclude that they should be equal or that there is more exposure in one sector if it is less than the other. At least I am not smart enough to do that.

Also, the FDIC can raise more money by raising member assessments to cover government layout to bridge them over so they do not necessarily have to print money and have no return of real value. They could but they dont have to. Depends on who is in power in government. The giveaway folks or the return on your investment folks.

 

[djs]

So if the total reserves for the industry are held as cash or liquid investments in order to pay claims whereas the FDIC only has a percentage of what it would need in the event it does get hit it seems to me that having enough cash to pay claims versus only having a % to pay claims would make the industry as a whole safer. And the FDIC IS an insurance company.

Again, you are trying to compare apples and tires. They are different things. The FDIC is more the equivalent of the states insurance reserve, not the insurance company. The states insurance reserve in most states is probably no better off than the FDIC. In fact, probably not even close.

The other side of this is I think you lose some credibility in trying to attack the FDIC and then say companies like AIG (the insurance industry) are more secure. You have to think how this comes across to the average person.

On the other hand, if you make parrellels, you can gain some credibility. Mr. Investor, as you know, the FDIC insures money you have in the bank, up to their limit. They do this by having a reserve built up for the unlikely event the unthinkable happens. Insurance companies protect risks in much the same manner, by having solid reserves against the deposits.

Yes, that would take a little word-smithing, and I would avoid talking about any insurance guarantee funds.

Dan

 

[Guest]

Dan, I realize they are different. But I'm not looking at specific instances like AIG or Citi-Group and correct me if I'm wrong but my thinking is that the FDIC is a guarantor of depositors monies, and insurance companies are guarantors of clients cash values. Money is money, and I thought the % required for reserves by insurance companies was on average higher than the % required for the FDIC. But I don't know, which was one of the reasons for me starting the thread. Edification is good.

But, if I am correct, and I don't know that I am then on strictly a percentage basis alone, the higher reserve requirement would theoretically make the insurance industry safer.

Also, insurance companies are in the private sector and exist to make a profit. That, in and of itself is inherently risky. The FDIC, of course is in the public sector and so although it is not at risk in this way it does stand behind banks which are in business to make a profit also. Which means the FDIC is, to a certain extent, at the mercy of the banking industry's investment decisions.

This gives the banking industry the freedom to make somewhat riskier decisions than the insurance industry can which has no FDIC or guarantor standing behind it.

So, what do I have so far?
1. Insurance companies and the industry as a whole are financially stronger than the banking industry and specifically the FDIC in reserves, maybe.
2. The insurance industry has no federal watchdog/bailor and so is more self-reliant and therefore more disciplined.
3. The insurance industry doesn't have the luxury to make as risky decisions as the banking industry.
4. Since monies placed with insurance companies are inherently for long-term placement/accumulation as opposed to monies put into depositors accounts there is less chance of runs being made on insurance companies.

O.K. I know it's not perfect and I'm not advocating putting all of your money with either the insurance industry or the banking industry. I just wanted to see if there were somewhat sound, somewhat valid arguments that could be made in favor of the insurance industry.

 

[SportsNut]

SportsNut

Technically the FDIC is a separate entity but it is bcked by the... Full Faith and Credit of U.S. Government Behind the FDIC Deposit Insurance Fund ​

which, if it had to COULD print more money to meet the shortfall. But, therein lies the problem me thinks. The FDIC is NOT required to have the same amount of reserves the industry IS required to have and so at least in my opinion is the weaker of the two. Printing more money to meet debt simply devalues the dollar.

Oh, I get it now... you had a pre-conceived notion and desired destination with the question and answer. You wanted the ins cos to be stronger, so therein you declare that the ARE STRONGER...

Lots of luck on that one, Snowman...

Furthermore, if you were to make a claim or comment like that to one of your clients, therein known as a "representation", rain could fall on your head in the form of big trouble from the ins commish.