Insurers’ Exposure To Subprime Risk Remains Low
Moody’s has reiterated its view that insurance companies on the whole have little exposure to subprime mortgage risk. Even those sectors such as mortgage insurers and financial guarantors that have higher exposure also have adequate capital to make the exposure “broadly manageable,” according to the transcript of a Moody’s teleconference available at no charge here (registration required).
The negative developments in the US subprime residential mortgage market have had varying effects — both direct and indirect — on insurers around the world. Most insurers, regardless of type or location, generally have some level of US subprime mortgage exposure in their investment portfolios — either through direct investments in mortgage-backed securities or through resecuritizations such as collateralized debt obligations (CDOs) that contain mortgage-backed securities.
Certain insurers also have exposure to deterioration in the mortgage markets through their underwriting activities, most notably in mortgage insurance and financial guaranty, but also in general insurance — through Director and Officers coverage, and/or Errors and Omissions insurance.
We currently believe that exposure to the subprime mortgage market assumed through insurers’ investment activities are unlikely to have any ratings impact for the vast majority of insurers across the globe.
Moody’s said it will continue to monitor insurers for secondary exposure and the possible knock-on effect on the global stock markets and liquidity in general. There is, however, somewhat higher risk associated with the exposure to mortgage market dislocation that is assumed via insurance activities, principally by mortgage insurers and financial guarantors. Moody’s says the combination of the nature of those exposures and insurers’ capital adequacy levels makes these risks broadly manageable.
Moody’s earlier detailed report posted by ResearchRecap on Aug 20 is also available for purchase here.
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