As if the insurance industry didn't have a bad enough image problem, the potential fallout should bond insurers lose their Triple-A rating due to boneheaded acceptance of subprime exposures has prompted devastating headlines and a new round of questions about whether carriers are adequately regulated–including calls for Uncle Sam to come to the rescue.
By now everyone knows about how bond insurers, over-eager for growth, stepped outside their comfort zone of backing municipal bonds and other relatively safe risks to leap into a bottomless pit–the securitization of subprime mortgages.
Even though bond insurance only accounts for a tiny portion of overall industry premium, failures of judgment in that sector put all insurers in a terrible light and sent regulators scrambling to battle stations.
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