An initial concern for a number of property-casualty insurers was that the fallout from the subprime market meltdown would adversely affect their investment portfolios, prompting a few carriers to go out of their way to assure investment analysts their exposures were not material.
As bankruptcies and financial troubles have surfaced among mortgage lenders, however, there is also increasing concern that even if carriers' investment portfolios are safe, they may have yet-to-be-recognized problems on the underwriting side of their operations, in the directors and officers liability insurance product line.
The subprime crisis began to develop as housing prices fell and credit tightened. Homeowners with poor credit ratings, or those who could not afford fixed rate mortgages, secured adjustable rate mortgages when credit rates were low and more affordable. As interest rates increased, they discovered they could no longer afford the payments. The result was mounting foreclosures in a housing market already saturated with houses.
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