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I.I.I. Says Most Insurers Have Little or No Subprime Exposure

The vast majority of U.S. insurers have little or no exposure to the volatility in the subprime mortgage market because a substantial percentage of their...
September 19, 2007

The vast majority of U.S. insurers have little or no exposure to the volatility in the subprime mortgage market because a substantial percentage of their investments are in the highest-rated bonds or stocks with no direct ties to lenders.  This report notes that about 53 percent of life/health insurers' invested assets were in the highest-rated class of bonds and 19 percent were in the next highest-rated class as of year-end 2006.  The comparable percentages for the invested assets of property/casualty insurers in the bond market were 67 percent and 4 percent, respectively.  The subprime mortgage market's recent turmoil does, however, hold out the possibility that claims may be filed by directors and officers liability insurance policyholders as well as those with errors and omissions coverage. 

The report concludes that both by law and by the nature of their business, insurers generally limit themselves to the low-risk end of the investing universe.  Even for the very small share of their investments directly exposed to subprime and near-prime loans, insurers mainly invest in "slices" of those investments that, according to the bond-rating agencies, are as safe as the safest corporate bonds.  The full report can be accessed on the I.I.I. Web site at http://www.iii.org/media/research/subprime/.

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