Sunday, July 29, 2007

Severance Insurance

Ok, here's a little bit of insight as to how big an arbitrage (the difference between how long a severance benefit a displaced worker gets and when that displaced worker gets a new job) could exist.

There was a 2005 paper written by Donald O. Parsons from George Washington University's Department of Economics that seems to have done a pretty good job researching the minimums and maximums of corporate generosity when it comes to severance. He found:

1. Exempt workers severance benefits ranged from 4 to 28 weeks.
2. Executive workers severance benefits ranged from 9 to 33 weeks.
3. Senior executive workers severance benefits ranged from 12 to 37 weeks.
4. Officers severance benefits ranged from 13 to 39 weeks.

So, it's pretty clear that there does exist a duration arbitrage that an insurance company could absorb a portion of the risk on.

willy

1 comment:

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