Yep. I was thinking about the insurance issue, and even before reading the article you posted (good read, by the way), I was thinking how pandemic insurance would be a huge, maybe unmanageable, risk for any insurance company to deal with. If you were the primary company insuring the hospitality business against business interruption due to pandemic, you might very well be out of business yourself right now.

That said, I think we can all sleep easily tonight regarding the restaurant owners from the letter in the OP. They own 6 more restaurants, and while I'm sure that closing this restaurant was a nasty hit to have to take, I don't think they're losing their life savings.

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Slowguy

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It's not as crazy as you'd think. I did some research into catastrophe bonds awhile ago and it's a really interesting market.

For an earthquake CAT bond you have a 100MM issue for Osaka and a 15% yield and 5 year duration. If there's an earthquake with X damage or Y on the Richter scale the principal is gone you're out 100% less what you received in coupons. No earthquake and you're up 75% after 5 years. Now let's say you by an Osaka and a Tokyo and the next day Osaka is leveled. You still get your Tokyo payments and after 5 years you're up 75MM or 7.5%. So what you do is buy a bunch of them and you're going to either get a good return or a great one. You can hedge a couple of ways but the easiest way IMO would be buy cheap Nikkei puts because if all of Japan gets hit the country is screwed (also probably FX options too).

You could do the same for a pandemic and buy lots of puts on world indices or something like that but that's why pension funds are the elegant solution they could match their actuarial book to the pandemic => no pandemic kick ass returns; pandemic the book is matched and you basically had a call expire worthless.

Sure, but the problem with this is that you can’t count on Osaka being hit and Tokyo being ok. The pandemic is everywhere, and businesses everywhere are taking the hit.

Say AllState covers most everyone in the Us for flood insurance. If there’s a big flood in FL, they are going to have to pay out a lot, but it’s balanced by all the other locations. For this pandemic, there’s nothing balancing it out. If AllState is the primary insurer for the hospitality sector, they’re paying out everywhere, all at the same time.

Of course, you might get lucky and not see a pandemic for 75 years. Or you might be like the company in the article spudone posted, and get hit with a global pandemic 18 months after trying to sell companies on pandemic insurance. They actually got lucky that nobody wanted it when they offered it, because they’d be well screwed now.

I’m sure people more savvy than I would/could figure out how to do it profitably, and the likelihood of a global pandemic would seem to be low, but man, the payout if/when it happens is massive.

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Slowguy

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That's what the last paragraph was about how the reinsurance company could lay off the risk. All-State would get rid of the risk (usually they pay the first X percent and then the reinsurance company covers the rest. You could hedge the risk with derivatives or you find someone who profits during a pandemic i.e. the pension funds.

disclaimer. Mrs. timeisup works for PE that has significant investment in restaurant supply chain and restaurant services.

rruff was pointed in their remarks, but the point stands. You are dismissing this claim because you feel restaurants fail at a greater rate than other business sectors and other business sizes. Businesses fail, all....the....time. People lose their jobs, all....the...time. Landlords have delinquent tenants, all...the...time. The government picked winners and losers through a failed socialist program and used the lenders as scapegoats to cover up their lack of forethought. The programs were incredibly mismanaged, which can be expected to some degree trying to roll something out so quickly. If you want to open a restaurant and you have capital, I'm guessing we won't see a better opportunity in our lifetimes than between Nov 5th-April. Pennies on the dollar for used equipment and turn-key space with pick your choice concessions on the super cheap. The good news is surviving rates are exponentially better if you have made it until now. Unfortunately just because you survived doesn't mean you weren't set back years or decades. Not out of the woods yet and there will be more failures, but I would be surprised if the industry dips a significant amount from here.

Well, they do. They're not alone, for sure, but they are among those types of businesses that fail at higher rates than many others.

That said, I'm not dismissing it entirely because of that. I'm questioning the usefulness of this letter for a variety of reasons, several of which I laid out pretty clearly. When a restaurant owner cries about how "it's not fair," as they close a restaurant, but go on to keep 6 other restaurants open, I don't find that compelling. These owners are not losing everything they have. When any restaurant owner complains about unpredictability during a global pandemic, I don't find that compelling. We're all suffering from unpredictability in how this virus will resolve. If someone could pinpoint when they can be fully open with a good degree of certainty, they would,....but we can't.

Yes, many restaurant owners will fail or be set back years because of this pandemic, and I sympathize with them, and with all the employees, vendors, etc who are supported by that industry. I'm simply not compelled by the call to "give me money," although I do, as I previously stated, understand the complaint about how relief money was distributed. Lots of people are being set back, are losing their businesses, or are losing their lives or their loved ones. It sucks for everyone.

I do feel confident that the hospitality is going to recover. It will hurt for awhile, and some people will lose their businesses while others take their place.

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Slowguy

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"Ok, well I guess I can just write you off as one of the small group of LR posters who are more interested in sitting in judgment of other posters than in having a discussion."

I found this comment amusing coming from you.

Carry on.

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-----------------------------Baron Von Speedypants
-----------------------------RunTraining articles here:
http://forum.slowtwitch.com/...runtraining;#1612485

That's because you're one of those handful of posters who doesn't understand that disagreement isn't equal to judgment.

Go back to your hole.

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Slowguy

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two more very well loved local restaurants announced they'll be closing by the end of the month. One of them started out as a food truck, expanded to more than one truck and then opened B&M in a very expensive, albeit busy area. I questioned it at the time, but they were slammed whenever we went there. Operating capital must have been much less than it appeared.

One consequence of COVID that I've discussed with friends is eating out less (not at all except pick up/outside dining) - - and not really missing it. Honestly, generally, restaurant food is not that good, and it's too costly. When / if things go back to normal we will likely continue to eat out less, and stick with a few resturants that offer authentic foods, or good ethnic menus (Indian, Etheopian, Mediterranean,etc.)