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Finance 432: Managing Financial Risk for Insurers

Finance 432: Managing Financial Risk for Insurers. Last Lecture – Risk Management and Life. Objective. Last lecture before retirement Words of advice for those about to start A career A more independent lifestyle

vaughan-garza
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Finance 432: Managing Financial Risk for Insurers

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  1. Finance 432: Managing Financial Risk for Insurers Last Lecture – Risk Management and Life

  2. Objective • Last lecture before retirement • Words of advice for those about to start • A career • A more independent lifestyle • Advice I may have found helpful at your stage, if I would have listened to someone about to retire (not likely, though)

  3. 1972 • War in Southeast Asia • Military draft • Domino theory • Financial system facing new challenges • Floating exchange rates • Inflation • What will I do? • Law school • Government statistician • Pollster • Actuary • Casualty • Life

  4. 1972 Update • Vietnam • Vacation destination • Budding capitalist system • Financial system • Series of financial shocks • Inflation in the 1970s • Interest rates in the early 1980s • Savings and loan crisis • Financial risk mismanagement crises • Stock market fluctuated until 1982 • Then advanced rapidly until 2000 • Since then both up and down years • I became a casualty actuary, then a professor

  5. 2008 • War in Mideast • Volunteer military • Homeland security concerns • Financial system facing new challenges • Subprime crisis and derivatives • Inflation • What will I do? • Consulting • Teaching • Travel • Writing • Fiction • Nonfiction

  6. Have a Goal • Begin with the end in mind* • What do you want from life? • Write it down • Read it regularly • Revise as you learn and grow * Steven Covey, Seven Habits of Highly Effective People

  7. Know Yourself and Live Accordingly • Not as easy as it sounds • Up to now many of you lived according to others’ rules • Parents • Teachers • Professors • Friends • And soon - bosses • Determine what it is you want from life, then find people who will help you achieve your objectives

  8. Life is a Marathon, Not a Sprint • Those who may appear to have an early lead may not turn out to be winners • Glamorous lifestyle • Prestigious job • High income • May lead to substance abuse, depression and early demise

  9. Health >>Wealth • Seven factors to predict healthy aging* • Not smoking • No alcohol abuse • Stable marriage (partnership) • Some exercise • Not overweight • Adaptive coping style • Years of education * George E. Vaillant, Aging Well

  10. Plan to Cope with the Inevitable Disasters • Insurance for hazard risks • Diversification for financial risks • Support system for emotional risks • Family • Parents, siblings, children • Friends • Trusted advisors

  11. Be Willing to Take Risks • Don’t take foolish risks • Don’t miss out on opportunities just because some risk is involved • Evaluate and try to choose wisely • If something doesn’t work out • Learn from your experience • Get on with your life

  12. If You Want to Retire, Plan for Retirement • Save money • Retirement plans • Additional savings • Things cost less for those who have money • Invest wisely • Doesn’t need to be time consuming • Review your portfolio periodically, not constantly • Develop an inexpensive hobby early in life* * Ben Stein and Phil DeMuth, Yes, You Can Still Retire Comfortably

  13. When Will You Retire? • Longer lifespans • Fewer defined benefit pension plans • Lower Social Security benefits • Effect of Baby Boomers • Plan to work into your 70s • Find work you love

  14. When Things Go Wrong – And they Will • If you are injured by someone else’s fault • Recover financially or • Recover physically • Your choice, but can’t do both • If you lose your job • Find a better one • Two years after, people agree it was for the best • If someone hurts you emotionally • Talk about it with someone you trust • Move on

  15. Career Advice • Work with people you like • More time with co-workers than with family • Common interests • Shared values • Leave dysfunctional workplaces • The Office • No disgrace in changing jobs • Decide what you love to do • Then figure out a way to get paid to do that • What would you do with your life if you won the lottery? • Do that now, forget the lottery

  16. Define Success Now • Tendency to ratchet up goals • How much money is enough • How much prestige is enough • How many papers are enough • Don’t chase the carrot on a stick

  17. Appreciate What You Have • Consider our current life • Food • Shelter • Freedom • A small minority of humans have ever experienced this level of these basic needs • What we lack now • Overriding mission, survival • Clan or tribe to help

  18. Advice for Life • Enjoy the experience! • Write home, and to me

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