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To: Archangelsk
Caps won't solve 'insurance crisis'

Perhaps not. The insurance industry is undergoing an unseen crisis at the moment, in that most of the investments they have their money tied up in, have been reduced to practically no yield, or have soured completely and gone south, actually decreasing in net value. They have always counted on the growth in the value of their purchased equities to cover insurance claims, while leaving the principal untouched or maintaining a steady growth, apart from receipt of premium payments, which are used to create new pools of principal for further investment. But the steady sure income has dried up, and now new premium money must be used to subsidize the deficits from payouts on claims. Therefore, premium payments are increased to compensate. Even if no more new claims are being made against the insurance company, they are a static or declining position in relation to the pool of capital available for income generation. This is one of the primary reasons that tax reform as a means of encouraging investment has been pushed so strongly by the Bush Administration. A vigorous and growing investment in the engines of economic development is the key to maintaining low insurance rates.

16 posted on 06/15/2003 7:29:45 AM PDT by alloysteel
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To: alloysteel
A vigorous and growing investment in the engines of economic development is the key to maintaining low insurance rates.

That's about the only way for insurance companies to make a return, in the low interest rate environment. When you pay low house payments after refinancing your mortgage, it has to come back out of you in some other way.

I think it might be a fair trade, many hundreds of dollars less in mortgage payments (if interest rates were in the ten percent range) than a couple hundred dollars in extra premiums.

31 posted on 06/15/2003 11:25:07 AM PDT by hunter112
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