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Claire Voyant	Posted - 2009.07.21 14:26:00 - [31] It's hard to follow your example. Here is what I think you meant: You collect 10 isk in premiums, investors contribute an additional 6 isk to the pool, for a total of 16 isk. You take your fee of 1 isk off the top leaving 15 isk in the pool. Assuming there is no additional underwriting, this would mean the insurance would pay out 1.5 isk for every 1 isk in premiums (compared to the current payout of 2 isk for tech 1 insurance.) If there are no ship losses, investors stand to make 9 isk in profit for a whopping 150% gain. If there are 50% in ship losses, the payout would be 7.5 isk leaving 7.5 isk for investors for a more modest 25% gain over 3 months. 60% ship losses would mean that the investors would have their 6 isk returned with no profit. Anything more than 60% in ship losses would mean a loss for the investors and 100% in ship losses would wipe out their investment entirely. Anyone familiar with the insurance industry knows that this would leave an enormous pool of isk in the hands of the insurance company which they could invest for an additional profit.
Mme Pinkerton Caldari	Posted - 2009.07.21 15:33:00 - [32] Originally by: Sir Elliot Seems like you're looking for some discussion, so here's my thoughts: If investment funds have attached to them the conditions (for example, this is the low sec fund, this is the high sec fund, this is the 'you can't undock in the ship while war-dec'd' fund), then I definitely invest (or since it's securitization, the blends). Enforcing such policies would need a considerable amount of work. If you simply want to split your package into different risk categories, I would suggest to have a look at Tranching. Ingenious financial instrument which allows you to take your BBB-rated obligations and derive some AAA and some junk ones from it (the issuer himself buys a big chunk of the junk ones, so investors will be happy - but that's the only downside). Needless to say this technique got pretty bad press during the last two years. " Credit is the economic judgement on the morality of a man. "
Tekota legion industries ltd Veni Vidi Vici	Posted - 2009.07.21 17:08:00 - [33] So basically pilots buy a Margaritaville on a payment plan, you then lump thousands of these Margaritaville installment plans together into Margaritaville-based securities, then chop those securities up into shares to sell to investors? Sorry, nothing constructive to add, I've thought about it really hard and I confess my head has yet to explode. I'll think about it some more till it does :D
Prodigal Caldari New Genesis Project	Posted - 2009.07.21 17:22:00 - [34] Regarding price of Insurance Hexx...... Should not the market determine the price of Insurance? It is pretty easy to determine the base value of an insurable item because we can find out how much it costs to manufacture. Cheers,
Mme Pinkerton Caldari	Posted - 2009.07.21 17:28:00 - [35] Originally by: Tekota So basically pilots buy a Margaritaville on a payment plan, you then lump thousands of these Margaritaville installment plans together into Margaritaville-based securities, then chop those securities up into shares to sell to investors? Sorry, nothing constructive to add, I've thought about it really hard and I confess my head has yet to explode. I'll think about it some more till it does :D The key to this idea is that Var[X/n]=Var[X]/n^2. So by splitting the investment into n shares, the risk (=variance in possible payouts) associated with each share is much less than 1/nth the risk associated with the initial investment. " Credit is the economic judgement on the morality of a man. "
Hexxx Minmatar	Posted - 2009.07.21 17:32:00 - [36] Originally by: Prodigal Regarding price of Insurance Hexx...... Should not the market determine the price of Insurance? It is pretty easy to determine the base value of an insurable item because we can find out how much it costs to manufacture. Cheers, I think this is how the price will be determined, by the market and how much people are willing to buy it for. Transparency and data will be key to accurate pricing, and accurate pricing means better pricing of risk. EBANK - Chairman of the Board \| www.eve-bank.net
Kazzac Elentria	Posted - 2009.07.21 18:00:00 - [37] Originally by: Mme Pinkerton Originally by: Sir Elliot Seems like you're looking for some discussion, so here's my thoughts: If investment funds have attached to them the conditions (for example, this is the low sec fund, this is the high sec fund, this is the 'you can't undock in the ship while war-dec'd' fund), then I definitely invest (or since it's securitization, the blends). Enforcing such policies would need a considerable amount of work. If you simply want to split your package into different risk categories, I would suggest to have a look at Tranching. Ingenious financial instrument which allows you to take your BBB-rated obligations and derive some AAA and some junk ones from it (the issuer himself buys a big chunk of the junk ones, so investors will be happy - but that's the only downside). Needless to say this technique got pretty bad press during the last two years. Yet would work pretty well in EVE since the risk associated with each portion is pretty clear as day unlike in the RL where obfuscation can mask the real risk associated.
Daeva Vios New Eden Credit Bureau	Posted - 2009.07.21 18:10:00 - [38] I'm all giddy now. ------------------------------------- NECB
Hexxx Minmatar	Posted - 2009.07.21 20:47:00 - [39] It occurred to me that much like margin accounts, extending credit on the partial value of the security provides easy, quick credit. If the value of the security decreases too much, the loan can be called (and the security seized if the call is not met). If all this is virtualized (via exchange) this could potentially open up real credit options based on investments. In this fashion, leveraging equity becomes a real possibility for the average pilot and historically speaking, the availability of credit has been a hallmark of a vibrant economic environment. Now all I have to do is destroy T1 insurance. EBANK - Advisor \| www.eve-bank.net
Selene D'Celeste Caldari The D'Celeste Trading Company ISK Six	Posted - 2009.07.21 21:49:00 - [40] Originally by: Hexxx It occurred to me that much like margin accounts, extending credit on the partial value of the security provides easy, quick credit. If the value of the security decreases too much, the loan can be called (and the security seized if the call is not met). If all this is virtualized (via exchange) this could potentially open up real credit options based on investments. In this fashion, leveraging equity becomes a real possibility for the average pilot and historically speaking, the availability of credit has been a hallmark of a vibrant economic environment. Oh boy.
Taedrin Gallente Golden Mechanization Protectorate	Posted - 2009.07.21 23:42:00 - [41] Edited by: Taedrin on 21/07/2009 23:42:47 I hope you get this going, Hexxx. I am personally excited about player run insurance, as it allows for a myriad of possibilities. Not only could you insure a player's ship, but you could also insure other items which are not insurable via the current insurance mechanics. Like say insuring a high sec research POS against war decs, insuring a profitable moon against sieging, insuring T2 ships or so many other things. On top of this, you could bypass some of the inefficiencies of current insurance - such as how trading, ejecting, repackaging or etc nullifies insurance. The idea of player run insurance has a lot of merit, even if I have NO idea what it was that Hexxx was talking about in his OP.
Kazzac Elentria	Posted - 2009.07.21 23:58:00 - [42] Originally by: Selene D'Celeste Originally by: Hexxx It occurred to me that much like margin accounts, extending credit on the partial value of the security provides easy, quick credit. If the value of the security decreases too much, the loan can be called (and the security seized if the call is not met). If all this is virtualized (via exchange) this could potentially open up real credit options based on investments. In this fashion, leveraging equity becomes a real possibility for the average pilot and historically speaking, the availability of credit has been a hallmark of a vibrant economic environment. Oh boy. I think HEXXX just found a niche where if we can build it, they will come and finally force CCP into giving us more tools at our disposal and perhaps even more control over the isk flow as a whole. The proper application of credit ensure that in any system, goods and services move about and exchange hands as fast as possible without having a need for a silly thing called money.
Selene D'Celeste Caldari The D'Celeste Trading Company ISK Six	Posted - 2009.07.22 00:01:00 - [43] Originally by: Kazzac Elentria I think HEXXX just found a niche where if we can build it, they will come and finally force CCP into giving us more tools at our disposal and perhaps even more control over the isk flow as a whole. I have reservations about ship insurance (less on other kinds), and far more reservations about CCP ever changing something for us, but that would be nice. Originally by: Kazzac Elentria The proper application of credit ensure that in any system, goods and services move about and exchange hands as fast as possible without having a need for a silly thing called money. Of course it needs to be done in a way to prevent what is happening off-EVE right now. The bottom line is actual profit, and in game there is far less ability to make "money on paper" like there is off-EVE without actually changing the books and stealing from people. There are obviously ways to do it, of course, but I think EVE has its own special set of limitations due to its particular nature.
glas mir Reaction Scientific	Posted - 2009.07.22 00:05:00 - [44] great now all we need are derivatives based on these, then we can have a mini credit crunch. I think the big problem is gathering enough information on a pilot to classify them, you can't assume honest information. That and insurance fraud.
cosmoray Cosmoray Construction	Posted - 2009.07.22 00:20:00 - [45] This whole thread has made me realise that CCP could allow us to have an ingame insurance market. Have an insurance tab on the market. To sell insurance you select ship type, what the insurance pays out (so T2 could be covered) if ship blows up. All other mechanics are same as current CCP ones (including time, etc). You would then set the sell price on the market. You could buy from me or another if you like. You could also put up a buy order.
Selene D'Celeste Caldari The D'Celeste Trading Company ISK Six	Posted - 2009.07.22 00:28:00 - [46] Originally by: cosmoray This whole thread has made me realise that CCP could allow us to have an ingame insurance market. Have an insurance tab on the market. To sell insurance you select ship type, what the insurance pays out (so T2 could be covered) if ship blows up. All other mechanics are same as current CCP ones (including time, etc). You would then set the sell price on the market. You could buy from me or another if you like. You could also put up a buy order. That would be pretty amazing. Though it would kill off current plans that people have for ships =D
Gareth Montesque	Posted - 2009.07.22 02:33:00 - [47] Will this insurance track mods and implants? What term lengths are you considering before expiration and will there be a partial payback to the insuree if they experience no losses during the term limit? The biggest consumption of time is valuating the asset(s) with constant flux of market price including items that can not have historical pricing gathered via api you are looking at a nightmare once 100's or even 1000's of pilots start buying. Now this does assume you will include mods and implants if not then it becomes simpler but still a real beast. Hell billions of real life assets over hundreds of years have been spent in building up actuarials with significant correspondance to the insured assets/person. Have you thought about possible areas of fraud not protect by API keys? Sorry in a weird mood tonight. Gareth
SpiderWebMayhem GoonFleet GoonSwarm	Posted - 2009.07.22 04:12:00 - [48] I'm no accountant but have a few concerns/questions, in particular about this quote: Quote: Liquidity is virtually guarunteed as only MASSIVE losses could result in an inability to pay out. This means the insurance company significantly reduces it's risk of illiquidity. I don't believe this is a valid statement. Unlike real life where the average person may only rarely get into a car crash or require medical attention, average Eve players get their ships blown up all the time. "Massive" losses happen on a near daily basis. Wouldn't outrageously high premiums be required of lowsec/nullsec pilots to make this work? And if that is the case, I don't see many players purchasing the insurance.
Hexxx Minmatar	Posted - 2009.07.22 04:15:00 - [49] Originally by: SpiderWebMayhem I'm no accountant but have a few concerns/questions, in particular about this quote: Quote: Liquidity is virtually guarunteed as only MASSIVE losses could result in an inability to pay out. This means the insurance company significantly reduces it's risk of illiquidity. I don't believe this is a valid statement. Unlike real life where the average person may only rarely get into a car crash or require medical attention, average Eve players get their ships blown up all the time. "Massive" losses happen on a near daily basis. Wouldn't outrageously high premiums be required of lowsec/nullsec pilots to make this work? And if that is the case, I don't see many players purchasing the insurance. What makes you think I want to insure combat ships? EBANK - Advisor \| www.eve-bank.net
SpiderWebMayhem GoonFleet GoonSwarm	Posted - 2009.07.22 05:08:00 - [50] Originally by: Hexxx What makes you think I want to insure combat ships? Touche. So we can assume you plan on insuring safer, less destroyed items such as POS and equipment, freighters, goods being moved to market, etc?
Hexxx Minmatar	Posted - 2009.07.22 05:50:00 - [51] Originally by: SpiderWebMayhem Originally by: Hexxx What makes you think I want to insure combat ships? Touche. So we can assume you plan on insuring safer, less destroyed items such as POS and equipment, freighters, goods being moved to market, etc? Non-combat ships first. I'll expand from there in a conservative fashion. I'd like to see how the first phase goes before I decide what to take on next. EBANK - Advisor \| www.eve-bank.net
Packtu'sa Nabaal Construction and Industrials Corp Nabaal Syndicate	Posted - 2009.07.22 06:26:00 - [52] I think most of you are missing the point of this particular discussion. Insurance is interesting, yes. Schemes which avoid the obvious pitfalls are interesting, yes. That's not the point. What's going on here is the insurance company is reducing its own risk of loss by allowing investors to purchase that risk in the form of a security. Since most securities are broken up into smaller blocks, an investor can easily maintain a diversified portfolio. Since the investor is buying this risk, the insurance company is protected and can steadily profit from a management fee while exposing itself to a vastly reduced level of risk, dependent on how much the security sells for. The price of the security is determined naturally, based on demand for it. As the price increases, investors are increasing their risk because there is a smaller threshold of claims which can be paid out before the value of the security drops below the purchase price. The insurance company benefits because while it retains the profit from its management fee, it reduces its risk exposure. As the price of the security decreases, investor risk decreases and their profits increase (assuming same claims paid out), and the insurance company is exposed to more risk. It is therefore beneficial to the investor for the price to drop, but lower prices will of course increase demand for the security. It is also therefore in the insurance company's best interests for the operation to remain profitable, because even if it reduces its own risk by selling securities, the price of those securities must remain high for that risk reduction to stay in place. For the security prices to stay high, the policy pool must perform well. The biggest challenge I see in implementing this is associating a particular security (for a particular policy pool) with a more commonly-known metric. An expected/average/historical/whatever ROI figure would serve nicely. (It's a lot easier for an investor to look at "the average performance is a 3-6% monthly return" than at a bunch of statistical data about past insurance policies.) To this end: we might very well see indexes or other funds pop up that make the process easier. Let's say with careful management, a portfolio of insurance policy securities brings in 10%/month; I can launch an IPO and take a 20% management fee, and it's still a good deal for all involved. Packtu'sa Founder/CEO, Nabaal Construction and Industrials Corp [NCIC]
Hexxx Minmatar	Posted - 2009.07.22 14:11:00 - [53] Originally by: Packtu'sa I think most of you are missing the point of this particular discussion. Insurance is interesting, yes. Schemes which avoid the obvious pitfalls are interesting, yes. That's not the point. What's going on here is the insurance company is reducing its own risk of loss by allowing investors to purchase that risk in the form of a security. Since most securities are broken up into smaller blocks, an investor can easily maintain a diversified portfolio. Since the investor is buying this risk, the insurance company is protected and can steadily profit from a management fee while exposing itself to a vastly reduced level of risk, dependent on how much the security sells for. The price of the security is determined naturally, based on demand for it. As the price increases, investors are increasing their risk because there is a smaller threshold of claims which can be paid out before the value of the security drops below the purchase price. The insurance company benefits because while it retains the profit from its management fee, it reduces its risk exposure. As the price of the security decreases, investor risk decreases and their profits increase (assuming same claims paid out), and the insurance company is exposed to more risk. It is therefore beneficial to the investor for the price to drop, but lower prices will of course increase demand for the security. It is also therefore in the insurance company's best interests for the operation to remain profitable, because even if it reduces its own risk by selling securities, the price of those securities must remain high for that risk reduction to stay in place. For the security prices to stay high, the policy pool must perform well. The biggest challenge I see in implementing this is associating a particular security (for a particular policy pool) with a more commonly-known metric. An expected/average/historical/whatever ROI figure would serve nicely. (It's a lot easier for an investor to look at "the average performance is a 3-6% monthly return" than at a bunch of statistical data about past insurance policies.) To this end: we might very well see indexes or other funds pop up that make the process easier. Let's say with careful management, a portfolio of insurance policy securities brings in 10%/month; I can launch an IPO and take a 20% management fee, and it's still a good deal for all involved. Bingo. EBANK - Advisor \| www.eve-bank.net
Claire Voyant	Posted - 2009.07.22 14:19:00 - [54] OK, this thread has officially become a joke, right? This whole collateralization idea is off the deep end. Tell me what you think of my great idea. I'm going to give loans to people by holding lottery tickets as collateral. Of course, I'm only going to loan them 50% of the value of the tickets so I am protected in case the value should decline. And if by any chance the value of the tickets do decline, I will immediately call the loan so there is no risk of default, right? Anyway, back to Hexxx's idea. Maybe he could take this collateralized debt and repackage it and sell it as an investment, maybe call it say "collateralized debt obligations" or CDOs for short. Now the real beauty comes in because people might be thinking these investments might not be 100% safe, so they might be looking for some portfolio insurance, and who better to sell them that than the largest private insurance company in Eve. Really, the possibilities are endless.
Selene D'Celeste Caldari The D'Celeste Trading Company ISK Six	Posted - 2009.07.22 14:24:00 - [55] Edited by: Selene D''Celeste on 22/07/2009 14:24:11 Originally by: Packtu'sa Words That was a very clear synopsis of the concept. Gold star =D
Claire Voyant	Posted - 2009.07.22 15:07:00 - [56] Originally by: Selene D'Celeste Edited by: Selene D''Celeste on 22/07/2009 14:24:11 Originally by: Packtu'sa Words That was a very clear synopsis of the concept. Gold star =D Fewer words, more numbers, please. Maybe the MD Elite should change their name to "Masters of the Universe"
Kalrand	Posted - 2009.07.22 15:08:00 - [57] I don't think that you are going to be able to issue the pool backed bond you are talking about. The risks will be too opaque to investors, and the person making the decision on who to insure isn't going to face the downside of making bad decisions. I do think I have an idea that would work for you. What you could do is more of a 1900's Lloyd's of London style syndicate. This would be where you take a handful of wealthy investors, a handful of skilled insurance agents, and a handful of salesmen. The wealthy investors would be the final security on the insurance. I'm assuming that you're thinking of writing billions of isk worth of "low risk" insurance, having only millions of isk worth of premiums paid. These wealthy investors (In Lloyd's speak, they were called "Names") are the ones who guarantee insurance claims with all their personal wealth, should catastrophic losses occur. These would need to be people, corporations, or alliances with known reputation in the game and significant personal or corporate assets that could be liquidated. The next would be the salesmen. These are the guys that go out there and tell all those High Sec Hulk Pilot with T2 expander rigs and officer shields why they need to buy "real" insurance for their setup. My suggested sales line would include the phrases "Goonswarm is targeting you." and "How long would it take to mine enough veldspar to replace your ship?" Next move on to the high sec research corps that have wardecs on them. I think the only change in the sales pitch needed is to replace "ship" to "faction tower". Finally there's the agents. These are the guys (Or you, I presume) that come up with the premium amounts, the required fittings, the limitations on whats covered, and the people who make an attempt to ferret out the fraudsters. My recommendation would be to insure a specific fitting at a specific amount, say reimbursing 60% to 80%. Always make sure its cheaper to firesale an asset than to insurance fraud it. Then balance whats a salable insurance premium, with what will leave you broke if Bad Things happen. Agents get significant bonuses when there are no major claims and otherwise draw a salary, salesmen are paid on commission, and the names get a monthly check for being the backstop. On top of all this, you could issue bonds in the name of the syndicate, as a cushion between when the premium amounts are fully paid out in claims and when the the Names are called upon to make payments. With sufficient reputation and track record, this could be the way you get the leverage you wanted from the pools you wanted to sell. Thoughts?
Mr Horizontal Gallente KIA Corp KIA Alliance	Posted - 2009.07.22 15:14:00 - [58] What Hexxx is trying to do here isn't only to have an insurance company, but make a reinsurance exchange... effectively what Lloyds of London is RL. What happens is each insurance company creates a fund - that behaves in a very similar way to a pension fund (hence why Life Insurance and Pensions tend to be provided by the same people). The premiums all 'top up' this fund, and then the fund itself is also worked, so it has an income of its own by investment. Where investors come in (in insurance, they're called underwriters), is they buy 'equity' in this fund, in which the principle of their investment also tops up the fund, and allows the fund to cover more. The 'shares' they get in return from this fund aren't called shares, but 'risk'. There is a dividend payment from the fund, since it has income from 2 sources: investment and premiums, and it's proportional to the amount of risk they have in the fund. RL the underwriters are the powerful people, who define the terms of what is and isn't covered by the fund. It is they who make it nigh on impossible for a 17 year old to drive a fast car, since it's their money to lose if/when said 17 year old crashes is Vauxhall Nova into a Rolls Royce. In practice, insurers can insure virtually anything, so long as you can find an underwriter willing to take the risk on. The specifics of the premium amount, the contract stating the payout terms can be adjusted in virtually any way required. So: The underwriter buys risk, and in return gets a share of the income The client buys a premium and in return pays it on a regular interval in return for cover The insurance company administers the premiums and the underwriters, as well as earning money through traditional means of investment for the fund (usually they underwrite a large proportion of their own fund as well) Director \| www.eve-bank.net
Dibsi Dei Salamyhkaisten kilta	Posted - 2009.07.22 15:30:00 - [59] Make this happen before we drown on the flow of isk from in-game insurance!
SencneS Amarr Rebellion Against Big Irreversible Dinks	Posted - 2009.07.22 17:08:00 - [60] Lots of good talking going on in this thread :) I'd like to point out that the insurance company may not always offer up every policy in a pool. Some policies the insurance company would keep, so it's not like every single policy will be underwritten or pooled and securities sold. I mean lets face it, if the model works well and customers like it then it'll be profitable. At the same time we can't just lump all "bad" policy and sell them as securities. From a business perspective the investor needs to feel as if they are getting something out of it as well. So it likely only a couple of questionable policies will be included with a couple of solid policies. In the end this is all about risk management, give and take. However I feel if this successful we may very well see a new form of IPO's created in which they are backed by securities though "rich" underwritters. Someone thing like EBANK gobbling up an IPO then issuing securities on that IPO caving/scamming etc in return getting any profits. Being an EBANK Director as long it gets 5% return on investment then I don't care what the securities investors get :) Amarr for Life

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