THIS! When something has been operating for decades in a way which you THINK you understand (even though you might NOT understand it…) then CHANGES substantially in a short period of time for additional reasons you do not understand, look out. The ponies are trying to tell you something. ***
The insurance business is unlike any other business segment involving vast amounts of money and long term trends, primarily because it allows a company in the business to adjust their risk profile nearly continuously. If you invest $500 million in a chemical plant but that industry takes a short dip for 2-3 years, there is nothing you can do to cut your losses short of selling the asset on a firesale basis. In insurance, if your statistical analysis begins telling you that loss profiles for the next three years are going to quadruple your payouts, it is not strictly necessary to hang in that market and take your lumps and eat the forthcoming claims. You can simply decline to renew the policies. Sure, you might forfeit $50 million in cash up front for premium payments but if you avoid a $1 billion dollar spike of claims, you’re miles ahead.
WTH
*** One of my favorite movies is Little Big Man which depicts the evolution of the relationship between Jack Crab (“Little Big Man” played by Dustin Hoffman) and Old Lodge Skins, his adopted, on and off again Cheyenne chief father. At a certain point, Old Lodge Skins loses his sight but becomes highly attuned to his hearing and spiritual unity with the horses of the tribe. Towards the end of the movie, at a point when everything should be going well for the Cheyenne tribe as they live in land promised to them by the US Federal government “as long as the grass grows, the wind blows and the sky is blue…”, Custer’s troops come by in a raid and wipe out most of the tribe. As they approach from miles away, the ponies begin whinnying and snorting and only Old Lodge Skins can understand why. He can pick up on the fear of the horses who can hear troops approaching and realize danger is coming.