A Day in the Life of John Davidson, Part VI

My apologies to readers for not completing this six weeks ago.  It’s not as if I did not know where I wanted to go, it was that things in my life and other aspects of the news led me to cover other things.  Here are the episodes so far:

I hope to complete this in 1-3 more episodes.  For those that want a program, here are the main characters, and I don’t think that I am introducing any more.  By the way, when I am done, I will publish this whole story as one long post.

Cast of Characters, in order of appearance

  • John Davidson — Protagonist, CEO of Wonderful Life
  • Peter Farell, — Chief Investment Officer for Mega Insurance, the holding company for all of the operating subsidiaries.
  • Brent Fowler — CEO of Whata Life
  • Henry Goldsmith — CEO of Mega’s P&C reinsurance subsidiary
  • Marc Blitztein — CEO of Mega’s domestic P&C insurance
  • Brad Baldwin — CEO of Mega Insurance
  • Stan Bullard — Scion of the family that owns Mega
  • Caleb Matmo — Runs a firm that analyzes insurance financial statements, consulting for Mega


“Cash flow is the blood flowing through the circulatory system for businesses,” said Caleb Matmo.  “This is true of any sort of company, but with a financial company, the answer is tricky, because one has to take into account the change in capital required to support the business.  Also, with insurers, we try to equalize reserving, so that conservatism or liberalism gets stripped out.  This applies to both assets and liabilities.”

John thought about it.  “Hmm — I always said to my Chief Actuary, Greg, ‘No negative surprises.  We must not over-report earnings.’  Let’s see what happens next.”

Matmo continued, “Working with your actuarial staffs and with Peter, we have constructed a new accounting basis that reflects your ability to dividend to Mega.”

“Uh, oh,” thought John.

“But in the process, we have reflected standardized procedures for reserving, and capital levels as well.  Where the regulatory capital basis is too lenient we raised the level of capital necessary to support the business.  Companies should not dividend back funds necessary to support the business, even if the regulators might let them do it.  Think of the recent demise of your financial guarantee insurer as an example.  They sent ample dividends to the holding company, and all the while their business was deteriorating.”

John thought, “True enough.  So maybe dividends to Mega aren’t everything?…”

Stan Bullard said, “Mr. Matmo?  It’s time for a break.  After we come back, summarize your comments regarding each insurance subsidiary, and then Brad and I will take it from there, with your help.”

“Of course, Mr. Bullard.” said Caleb Matmo.

John got up and stretched.  He was bewildered at the turn of events, but he picked up the reports and headed to the Mens room.  “Time for analysis, but I need relief,” he thought.  The room went many different directions, but John ignored it.