U.S. property and casualty insurers face only “minimal” exposure to risks associated with the subprime lending crisis, according to a recent report by credit rating agency Fitch Ratings.
Property and casualty insurers could generally be exposed to subprime lending problems through investments in residential mortgage-backed securities, asset-backed securities, and collateralized debt obligations. Based on 10-Q filings and earnings call transcripts, Fitch reports that the 20 largest publicly traded U.S property and casualty insurers estimate their subprime exposure to be about $44 billion, representing 3% of total investments or approximately one-quarter of policyholders’ surplus.
However, Fitch Ratings says that these estimates are skewed significantly by the predictions of AIG, whose holdings, which include life insurance lines in addition to property and casualty, account for roughly two-thirds of the total analyzed by Fitch. Taking into account the greater likelihood of life insurance operators to invest more heavily in subprime mortgage-backed securities, Fitch reports that the actual impact on property and casualty insurers is more modest than the numbers suggest.
For more on the impact of the subprime lending crisis on the insurance industry, click here and here.
