Articles 1 to 6 of 6
At the End of the Day, Beneficiaries Pay: Changing Investment Management Firms Can Be Costly
When an employee underperforms, supervisors must decide whether to fire that person or wait to see whether performance improves. In the balance are the transition costs of finding a replacement and getting that person up to speed -- costs could be saved if the original employee improves. For the sponsor of a retirement plan, the decision to fire an investment management firm that is producing disappointing results also carries a cost, which ultimately impacts the its beneficiaries. Plan sponsors often chase what W. P. Carey School finance Professor Sunil Wahal calls "hot hands" -- investment managers who have recently turned in high numbers. But in a study that has attracted attention from both sponsors and managers, Wahal suggests that expecting a newly hired high flier to continue at top altitude may sometimes be expecting too much.
Insurers, Government Struggle to Manage Risk of Terrorist Acts
In the aftermath of the terrorist attacks of Sept. 11, 2001, insurance coverage for commercial property and casualty loss in the event of terrorism became hard to find and prohibitive to purchase. Congress responded in November 2002, enacting the Terrorism Risk Insurance Act. TRIA temporarily put the federal government in the property and casualty risk reinsurance business, agreeing to share in the compensation costs resulting from acts of terrorism. Meantime, insurance companies were to have assessed their exposure and learned how to price and underwrite terrorism policies. In December, unless Congress takes action, the TRIA will expire, but insurance companies have yet to come up with a way to provide meaningful and manageable terrorism coverage.
Pensions Both Public and Private: Underfunded and Under Fire
United Airlines set an unhappy precedent for companies struggling to fund their pension plans when it defaulted on its pension obligations, shifting $9 billion of its personal pension obligations to the Pension Benefit Guaranty Corp. The move contributed to the massive deficit of the PBGC, which insures private pension plans. Testifying this week before a congressional committee on the looming crisis of underfunded pension plans, David Walker, head of the Government Accountability Office, said, "Unfortunately, when it comes to pension funding, too many high-risk companies do what is legally permissible -- rather than what is right -- when deciding how much money to put into their pension plans."
Rebuilding Social Security: The Labor Elasticity Effect
In the debate over Social Security, Nobel Laureate Edward C. Prescott has been a strong voice for a shift away from the current pay-as-you-go model -- in which current workers pay for current retirees -- to a mandatory personal saving plan, in which workers' savings are put into low-cost, highly diversified funds. The personal saving approach would guarantee financial security for retirees in a country where the ratio of worker to retiree is declining, Prescott says, and would help boost the country's overall economic performance as well.
Catastrophe Modeling: A New Approach to Managing Risk
Before Hurricane Hugo swept through parts of the southern U.S. in 1989, the insurance industry had never suffered a loss of more than $1 billion from a single disaster. Since then, numerous catastrophes have exceeded that figure, even as development in danger zones continues to increase. It's a trend that emphasizes, as never before, the need to manage risk on both a national and a global scale. "People today are asking the question, 'How do we scientifically evaluate catastrophic risk?'" says Wharton's Howard Kunreuther, co-author -- along with Patricia Grossi -- of Catastrophe Modeling: A New Approach to Managing Risk. The book analyzes the role of catastrophe modeling in developing risk management strategies to help reduce losses from future disasters, ranging from floods and hurricanes to environmental damage and terrorism.
Accounting for The Abuses At AIG
When accounting problems at American International Group surfaced last winter, it looked like a small matter next to the corporation–busting scandals of the Enron era. But AIG directors acted as if the company's very survival was at stake, removing Maurice Greenberg as CEO and later forcing him to step down as chairman. The heart of the problem is this: No one can be sure how big the scandal will grow, because it involves business relationships, insurance products and accounting practices so arcane that few people understand them - including a controversial product known as "finite insurance."
