Economics Business Music Politics Altruism

Why SMB Need Key Man Insurance

20 July 2016^© Peter Lye

After 3 decades, Key Man Insurance is still too 747 heavy for lift off in big way.

It might be a sterling example of lost in translation. Though the label is semantically correct, the impression created seems to suggest some grandiose plan not meant for commoner.

This is far from reality as it was created mainly with the smaller business in mind instead MNCs and larger corporates.

Insurance is intangible in itself. Compound this complexity that Key Man Insurance hardly exists as ready to sell product but as a wrapper for a bespoke basket of insurance products, it is easy to understand why only the brave will attempt to venture.

Unlike liability class of insurance which provides a like for like recourse like repair, replacement or hold legally harmless, Key Man Insurance normally provides a pre-agreed compensation in cash. Some quarters voice that this money does not buy everything necessary to recompensate a key man insurance, it sure can buy many things.

Key Man are essentially owners, business partners or employees for which their continued ability to contribute to the business if curtailed by illness, accidents or death can result in major business impact. The value contribution can be special skills, relationships with customers or source of finance.

The risk coverage can range from basic death due to accident only, to term for death due to whatever cause or even critical illness. Critical illness can affect work ability and this is an important consideration though it is relatively more costly risk to cover. Many have asked about risk of jumping ship to competitor or leaving for whatever reason and the answer is normally no as there is a certain level of control over the outcome rather than a random event. This infringes one of the basic principle of insurance that the outcome is not controllable or largely not controllable.

Table:Key Man Issue Impact on SMB vs MNCs

	SMB	MNCs or Large Corporate
Funding	Owner. Bank Facilities (OD/Trade) with Personal Guarantees by shareholders.	Corporate Capital Market. Bank Facilities with Corporate Guarantees.
Skills Duplication	Rarely or limited	Widespread
Process Documentation	Limited even for those with ISO 900X	Robust
Economy of Scale	Limited	Larger
Ownership/Management	More Integrated	Segregated
Too Big to Fail	None	In Some Case
Quick Access to Sudden Cash / Resource	Limited	Extensive in Most Case Especially in MNCs.

It is clearly evident from the table above why SMB should be looking at Key Man Insurance rather than MNCs as they have sufficient buffer in most case.

Key Man Insurance Cash Pay-out is normally arranged in one of the following fashions when an insured event which is normally a Key Man like issue arises.

Firstly, for business that are funded by owner and Bank Facilities with Personal Guarantors, the Pay-out is useful in case the of loans or trade facilities by banks. A wise sage once opined that wise Bankers only try to loan you money when you least need it.

In the case of a sudden skill shortfall due to key person meeting the insured event, the cash pay-out is useful to secure additional resource to re-compensate part of the resource or to keep the business a float due to sudden drop in business.

As ownership and management is more often than not integrated in SMB, a buy-out agreement using the insurance cash pay-out as a base load can ensure a more congenial management of the company without the sudden intrusion of a new management member to replace the key man. This can be structured along the lines of a Texas Shoot Out Clause to ensure fairer value of transaction for both buyer and seller.

Most SMB owners have poured in blood and sweat to take their business to where it is and it would be a waste to see it die with them. In addition, it is also part of being a responsible to your business partners and employees.

Imagine chef/owner Peter of your favourite neighbourhood burger diner paralysed by a sudden stroke and passed away. What will happen to his business, partners, employees and most of all his family members. Little imagination is needed to picture the catastrophe.

The special marinate that makes the burger unique was formulated by Peter and though many staff and partners have seen it done daily, the exact recipe was never documented. Customers started to complain that the burger tasted different.

The business started by Peter as a small street corner food cart many years ago. When it tasted success, Peter roped in 2 additional business partners who were in the restaurant business to provide restaurant expertise to expand it into a full service diner. The additional capital needed to acquire shop space, kitchen and dining area were provided by the 2 new partners and bank over draft and trade facilities secured by joint personal guarantee by Peter and his partners.

The Bank not only stop all credit facilities but recalled all loans. The business almost grind to a halt as most working capital is via Bank facilities. Bankers are logical business that take such actions because firstly, they now have 2 instead of 3 personal guarantors. Secondly, business risk has also increased with poorer business outlook.

The final straw came when the Bank lodged a charge on Peter’s estate on account of the personal guarantee locking all the emergency funds the immediate family needs.

If the same were to happen to a branch manager of MacDonald, business would continue almost normally save for a minor discontinuity during the initial period it takes to transfer and localise another branch manager. Bankers, suppliers and customers would hardly blink about it.

This is why Key Man Insurance is for SMB.

Peter Lye aka lkypeter
lkypeter@gmail.com Safe Harbor. Please note that information contained in these pages are of a personal nature and does not necessarily reflect that of any companies, organizations or individuals. In addition, some of these opinions are of a forward looking nature. Lastly the facts and opinions contained in these pages might not have been verified for correctness, so please use with caution. Happy Reading. Peter Lye (c) Peter Lye 2014

Happiness in Singapore

“Happiness is mind over matter. If you do not mind (your circumstances ), it will not matter (to your state of happiness)."

Happiness or the lack of it has occupied our national psyche with some suggestion to adopt the Gross National Happiness (GNH) to complement the usual yardsticks like GDP.

Met an extraordinary 75 year old whose radiant outlook to life might put many youthful ones to shame.

Abode for he and his wife is in the pride of Singapore public housing HDB that houses about 80% of the population. In-spite of the relatively superior living conditions in HDB compared to public housing in many countries, the occupants have largely been infected with fever or fervent wish to upgrade to private housing. The term upgrade can be a misnomer as it often involves moving to a smaller home.

Amidst ground swell about greater divide between rich and poor, porosity between class and a less egalitarian habitat, the basic principles of a just and equal society built upon meritocracy is still very much in the DNA Singapore and Singaporean. The upgrade fever is further evidence of a just and meritocratic eco system.

My 75 year old subject proudly proclaims that he is totally immune to the upgrade fever his HDB dwelling meets most of his needs although he used belong to the 20% that reside in private housing. The basic upkeep of the estate in HDB is borne by the government or more precisely the town councils. There is no sudden compulsory monetary contribution for unexpected estate upkeep.

The living environment is safe and clean and utilities like water, electricity and garbage disposal works like clockwork. Amenities like grocer, market, food and primary health are all within walking distance unlike most private homes where such amenities are placed further afield.

Public transport like the subway and public bus (that works on regular schedules ) are all within walking distance as well. Private estates are generally less well served by public transport and would attract the attendant ownership of private car that is touted as being one of the most expensive. A standard 1.6 litre Toyota Altis would set you back by as much as USD80K and that is only valid for 10 years and not perpetually like in most countries.

As we age, our healthcare needs will grow geometrically with age. Subsidy on public healthcare quantum is determined by means testing and one of the major determinants is value of dwelling in addition to income as a balanced scoring of income and wealth. Access to affordable healthcare is key in old age and dwelling in HDB might not be such a bad idea. Not to game the means testing but rules no matter how crude is necessary to ration limited healthcare resource.

His parting advice to this younger author “Happiness is mind over matter. If you do not mind (your circumstances ), it will not matter (to your state of happiness)."

The song 'Money can't buy you Love' is at best a half truth and not a prescription to lessen the pain of poverty of make poverty more acceptable. God forbid. It does buy almost everything save for a limited priceless few like life and love. On the contrary, life without money is almost impossible. Even in difficult circumstances like poor health, money can buy you a more comfortable existence and care though not necessarily true love.

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SG50@VCH: LYNNETTE SEAH & SHANE THIO on Sat, 21 Mar 2015, 7:30pm at Victoria Concert Hall

Lynnette Seah

The exquisite sound string from the violin and violinist blended nicely with the acoustics of Victoria Concert Hall. It produced a sonority that reverberate my tympanic cavity through the auricle to produce a romantic and lyrical tonality that transported me into musical nirvana.

Shane Thio

Opening number was Johann Sebastian Bach’s Violin Sonata for Violin and Harpsichord BWV 1016 which his son Carl Philipp Emanuel, wrote to his father’s biographer Forkel in 1774, describing

Johann Sebastian Bach

the six sonatas for violin and harpsichord (BWV 1014-19) was among the best works of (his) late beloved father. The exquisite rendition by Lynnette Seah on the Violin was marred in part by her partner in crime for the evening Shane Thio on the harpsichord. Having heard the duo’s performance of other pieces on Seah’s debut CD “a musical odyssey”, I can only reach a verdict of insufficient practice on Thio’s part as someone of Thio’s stature, stage fright should no longer be an issue. The hall was mostly full and the audience a fairly well informed group should had been a morale booster.

Seah had her score on stand but Thio might have overestimated his memory capacity and sailed without score and page turner for the first two pieces and resorted to them only in the third and final piece after the intermission. For a piece like BWV 1016, it is tantamount to harakiri or stupidity as his part is fully scored by the composer with little or no room for variation except for some ornamentation.

Seah’s performance was mostly probably modeled after Arthur Grumiaux and Christiane Jaccottet in the area of tempo, phrasing and most vividly the tonality of the violin. Viktoria Mullova teaming with OttavioDantone is more celebratory whereas Seah’s and Grumiaux’s lean towards a contemplative aura. Emotion is the undertone for this piece with heavy Italian emotional mojo to boot. Mullova’s sounding with lighter bowing is in line with the faster tempo most prevalent in the second of the four movement piece. Rachel Podger is one of my favorite violinists but for her rendering of this piece with one of the better informed baroque musician Trevor Pinnock did not strike my heart string for some unknown reason. Her tone was thick like Grumiaux but is contaminated by some purposeful higher harmonics which might not reflect the intention of the composer. Perhaps the problem is mine as who am I to critique a baroque giant like Pinnock.

Arcangelo Corelli

Progressing from Bach a German composer writing a piece in BWV 1016 with strong Italian overtones, the next piece Violin Sonata Opus 5/12 by Corelli was truly all Italian. The basic ingredient is based on later Follia which is one of the oldest remembered European musical themes. Although the theme is centred around a minor mode, the expression sways dynamically from a sombre Adagio beginning in the first movement to expansive Vivace celebratory dance in the middle movement before coming full circle to end with another Adagio.

Seah took to lighter bowing in the slower movements to a naturally spirited at the height of the Vivace movement. One of the corner stone of this piece being a La Follia lies in the beauty of the chord progression. I wonder how Thio could have contaminated it by improper chord formations in a few instances. Wrong chord is forgivable but wrong chord formation is blasphemous as they are mathematical DNA deeply ingrained in musicians all and sundry.

Cesar Franck

Thio reclaimed his reputation in the final piece Franck Sonata for Violin and Piano as out went the harpsichord and in came the piano with score and page turner in toll as well. The transition from baroque to romantic era as well as a piece with more virtuoso part for the piano compared to the two earlier pieces by Bach and Corelli providing Thio with more newsprint. Thio’s solid control over the sustain pedal needing sudden hold back was exquisitely executed. Incidentally, this piece was a wedding gift from the composer to violinist Eugene Ysaye. Ysaye performed the piece during the wedding after a hurried rehearsal accompanied by one of the wedding guest who is a pianist. I guess there is unlikely to be a lack of musician to rise to the occasion as an accompaniment in a musician wedding especially of Ysaye standing. Wedding repertoire has a special place in my musical journey having played at many weddings when I was young. Another Siamese twin to this piece you must hear is Wieniawski Légende Op 17 in G minor which was written as abetrothal in my humble opinion on my blog.

There was resounding encore and gifts of a few garland of flowers to Seah but none to Thio not that I want to rub salt to the wound further. Thio is there as an accomplice rather than the star of the show and he has done it very well as a reflector so that the lime light in on Seah. The encore Melodie for Violin and Piano by Gluck was dedicated to Seah’s mother and it is one of the pieces in her CD.

A Musical Odyssey by Lynnette Seah

To appreciate Seah’s long sojourn with Singapore Symphony Orchestra as one of the founding artist of Singapore Symphony Orchestra, do buy her CD “a musical odyssey”. The entire CD makes for good nocturnal listening pleasure. All 10 sonatas recorded at Esplande Recital Studio were sonically well done by my audiophile peers I dare venture to be presumptuous. Track 11 of Bruch Violin Concerto seems to be incidental recording lifted off a live performance at EsplanadeConcert Hall and not up to the sonic quality the audiophile community would expect.

Lastly, the audience were impeccably well informed with no inappropriate clapping between movements and seems to connect with the performers in like manner of ‘may the force be with you’ in Star War speak. You cannot hear, see or feel it but its presence is beyond a shadow of doubt.

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Beethoven on the ‘A’ Train

Be careful what you wish for as it can turn out negatively when it is granted. My wish to hear Singapore Symphony Orchestra (SSO) perform in Victoria Concert Hall (VCH) 7 years ago at their 29^th Anniversary concert was full filled this week when she celebrated her 36^th anniversary concert at VCH. I attended the second of the 3 night repeat performance on Friday 13^th 2015 which to some is an inauspicious date but I have no such tendencies.

No one could fault SSO in choosing Beethoven’s 9^th Symphony Opus 125 in D minor “Ode to Joy” nick named “The 9^th”. The 9^th appeals not only to classical music aficionados but also enjoy universal suffrage having been transcribed into more modern renditions by the likes of Michael Jackson and many notable modern artists.

Having heard SSO under the baton of Lan Shui performing The 9^th in 2009 at Esplanade Concert Hall in Singapore, he did not disappoint in terms of speed as he chose the more modern faster meter totalling just under an hour whereas performers of older vintage like Furtwangler clock up to 70 minutes. Compared to the 2009 performance, players were better prepared though a tinge of tension still hung over the orchestra. I see no reason for Lan Shui to try to catch the ‘A’ train figuratively speaking. He can afford to clock slightly past the hour whilst still keeping the grandeur and celebratory mode of the piece.

The 9^th demands both a large stage and a larger hall for the music to breathe.

The stage was so crowded that the four cellists had to sit shoulder to shoulder and they can be forgiven if they slip as there is barely room for them to maneurve. The 4 soloists were awkwardly positioned between the second violin and the brass section and their voices were drowned out by the orchestra as a result. Beautiful inter leaving between the 4 soloists and the choir were mostly lost and came across as a boutique of badly chorused flowers.

The smaller and more intimate size of the hall did not provide enough air and good mix of both direct and reflected sound waves. In audiophile speak, it is akin to how large speakers would sound in a small room generally. It’s a pity to have BBC Singers fly all the way here without the correct venue to stage the performance.

Although SSO delivered a much better performance compared to their 2009 performance, the wrong stage and hall ambience made this performance less enjoyable overall. As the refurbished VCH had only reopened recently, is definitely has the potential todeliver better sonics. Fine tuning the hall is more of an art than science and we must allow it time to mellow. As for the 'A' train thingy, Lan Shui has chosen to be in the company of modern Beethoven interpreters.

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Wisdom of Va$ue under Fiat Currency - March 2015

"We want to believe things (money) have intrinsic value, .... the US dollar is backed by “nothing”, ... any currency system is backed by “nothing”"...Fortune Magazine

No single instrument can claim to be a safe haven including USD and gold but collectively, a safer haven is within reach.

Nixon’s presidency was punctuated by many significant events like his visit to China as well as the famous Watergate scandal. His most deep and long lasting decision to abandon convertibility of USD into gold has escaped many history textbooks for posterity. Perhaps tinsel town should consider a movie on this theme.

After Nixon abandoned convertibility of USD into gold in 1971, the gold standard figuratively speaking for measuring value lost its lustre. By 1973 all hope of restoring the Bretton Woods System was lost plunging the currency world into a sea of chaotic free floating fiat currencies which we have today.

Reverence for USD and her government took an unprecedented and irrecoverable hit followed that decision. Her position as the untouchable global leader remains but has diluted to undisputable and within gun sight of other global power wannabes. This puts the fragile peace since Second World War into jeopardy. In addition, most wars have its roots in economics and break out when the political process to band aid the economic wound fails and goes gangrene.

Against such a backdrop, measuring value in investment which was axiomatic in the past based on commodity and representative currency has turned into the equivalent of 50 shades of the grey. The economics 101 of money invented some 3000 years back in China is to facilitate trade and a referential store and measure of wealth for future consumption.

Reference losing its reverence is akin to salt losing its saltiness.

As a medium of exchange, it has served us well without which, cumbersome barter trade becomes the only other means of trade. Trade is necessary evil as we do not make all we need and there is no necessity nor advantageous to do so. Fiat money has created or exacerbated international trade involving different currencies as well as inflation/deflation as its intrinsic value floats about.

It is also by far the best store of value as it is non-perishable, portable, and holds an intrinsic value and so we believe until we unearth the dust beneath the carpet about fiat money. Pascal-Emmanuel Gorby most eloquently described the state of intrinsic value of money in an article "All Money is Fiat Money" in August 2013 of Fortune magazine as follows. "We want to believe things (money) have intrinsic value, .... the US dollar is backed by “nothing”, ... any currency system is backed by “nothing”".

Currency is revenue generating unlike gold which has a high intrinsic value but no such abilities save for capital gain/loss which in itself a product of demand and supply differential. Interestingly, since time memorable, gold has been universally recognized as valuable in its own right with little productive use except for limited application in some industries and this account for a small portion of the total demand for gold.

The strong demand for gold might reflect the diminished confidence in fiat currency as gold almost always appreciates as a flight to safe haven whenever there are significant disturbances in the political and economic spheres.

For the man in the street, it is important to consider spreading your risk to protect yourself from the systemic risk in fiat currency.

Consider parking part of your wealth in other currencies and hold enough of your local currency sufficient for a time horizon for transactional purpose. Avoid currencies that are pegged to each other like HKD and USD for example.

Exposed your wealth to certain countries and industries that you see an upside after due diligence. Funds could be a good alternative as some markets are not easily accessible or you might not have the scale to do so.

Invest in hard asset that you might need in the mid to long term to hedge against the currency risk like buying a house in a locale that your plan to retire in.

No single instruement can claim to be a safe haven including USD and gold but collectively, a safer haven is within reach.

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Music, Medicine and Trout

Oil painting of Franz Schubert
by Wilhelm August Rieder (1875)

Lunch time talk with my business partner who was a doctor for many years drifted into our founder Sir Stamford Raffles suffered from syphilis which is a STD and he also kept a Chinese mistress in Singapore.

The composer of "The Trout" Franz Peter Schubert in my previous article on Omega-3 died a bachelor of syphilis. Some music historian attribute his death to typhoid perhaps to remove the shame attached.

For those who are familiar with classical music, please skip the next two paragraphs as I explain the nomenclature.

Why label great classical works with monolithic and unimaginative titles? Having a meaningful name "The Trout" is a rare honour. The technically correct name is Piano Quintet in A major D.667 and lets unravel the actual name. Piano Quintet means a Piano accompanied by a String Quartet. Quintet is a root word for 5 and therefore 5 performers. A string quartet; quartet meaning 4; normally consists of 2 Violins, Viola and Cello but Schubert had one of the two violins substitued with a double bass in this case. The line up would be Piano, Violin, Viola, Cello and Double Bass. The D.667 is a reference number and most commonly used as Opus except for some composers like Schubert and Bach. A WvO or Posth means no reference attached or done posthumously after the death of the composer.

The next piece to unravel are the movements. Most pieces come in 3 or 4 movements. The transition from one movement to another can be punctuated with a pause or can be stringed together with no pause. Have attended concerts where some audience clap inappropriately between movements. If unsure, follow the crowd in your next visit to a concert. The label attached to each movement normally indicates the speed, mood and other special instructions. The Trout has 5 movements in our piece are I Allegro vivace, II Andante, III Schrezo: Prestissimo, IV Andantino - Allegretto, V Allegro guisto. Most of these words are Latin in origin. Some popular musicians attach titles like Andante Cantabile without reference the composer and title which shout of their possible lack of knowledge in classical music.

The maxim dead artists are worth or cherish more after their death hold true in this piece. The piece was written when he was 22 years old but was only published 10 years later or one year after his death. The piece was commissioned by a weathy music lover Sylvester Paumgartner. In current context, it means a for profit work where the artists gets funding ( and directions ) from the customer.

Jeremy Siepmann have this to say about this work "..irresistible piece of such infectious good humour....(how a) tightly structured quartet conjure up such a crystal clear aquatic picture" which explains the special name of The Trout. Perhaps you are more more ready to dive into the entire 5 movements now and enjoy it in the process.

Trout like most oily fish is a good source of Omega-3 as opposed to whitefish. Oily fish have oil in many parts of their body and contain an avergae of 30% more oil than whitefish which only have oil in their liver.

Lastly, for the more adventerous, these are highly recommended recordings gleaned from Gramophone Classical Music Guide.

1. James Levine, Gerhard Hetzel, Wolfram Christ, Georg Faust, Alois Posch. DG 431 783-2GH DDD
2. Christian Zacharias, Leipzig Quartet (Andreas Seidel, Ivo Bauer, Matthias Moosdorf ) Christian Ockert. MDG 307 0625-1 DDD