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  #21  
Old 12-09-2009, 08:40 AM
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Carol Marler
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This time, PhildeTruth may have it right for once.

Critics of the current GAAP version of Fair Value say that it made the economic crisis worse. And I generally chime in to say that it made the preceding bubbles worse.
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Old 12-09-2009, 08:49 AM
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I am not well-versed on accounting issues for assets; I'm wondering how the various CDOs would have been valued back in the day before the "fair value" concept came into being.
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Old 12-09-2009, 11:27 AM
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Commissions seems to have been what they focused on. See quote above and note that "underwriting" is not a function in non-insurance enterprises. This went right under their radar.

(I wonder whether oil exploration costs will no longer be capitalized. . .)
Mortgages have closing costs and underwriting. Sometimes these are paid up front and sometimes they a rolled into the loan. I'm not exactly sure how the accounting works on these relative to insurance, but it would seem they should be similar. Why aren't the banks complaining? Perhaps insurance pricing needs to change and charge an initial fee to cover acquisition costs and/or commissions? I'm not a fan of accounting driving product changes, but perhaps the current situation in insurance (high first year commissions and acquisition costs) is an artifact of the existence of DAC.
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Old 12-09-2009, 11:32 AM
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Perhaps insurance pricing needs to change and charge an initial fee to cover acquisition costs and/or commissions? I'm not a fan of accounting driving product changes, but perhaps the current situation in insurance (high first year commissions and acquisition costs) is an artifact of the existence of DAC.
Not exactly. The amount of effort expended by a life insurance agent is very much concentrated at the beginning - before the policy is even delivered. Thus the commissions need to be concentrated in the early years. This was the case even under statutory accounting, which provides extremely limited first year expense recognition - far less than companies actually incur.

Life insurance policies are something that people have to be talked into. An up-front charge for expenses would have the perverse effect of making the sale even more difficult. And the result would be less income for the agent, and less protection sold to people at risk of premature loss of income due to death. Just saying.
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Pluto is no longer a planet and I am no longer an actuary. Please take my opinions as non-actuarial.


My latest favorite quotes, updated Apr 5, 2018.

Spoiler:
I should keep these four permanently.
Quote:
Originally Posted by rekrap View Post
JMO is right
Quote:
Originally Posted by campbell View Post
I agree with JMO.
Quote:
Originally Posted by Westley View Post
And def agree w/ JMO.
Quote:
Originally Posted by MG View Post
This. And everything else JMO wrote.
And this all purpose permanent quote:
Quote:
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Yup, it is always someone else's fault.
MORE:
All purpose response for careers forum:
Quote:
Originally Posted by DoctorNo View Post
Depends upon the employer and the situation.
Quote:
Originally Posted by Sredni Vashtar View Post
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