Fitch Examines Subprime Impact On P-C Insurers

Fitch Ratings said an examination of property-casualty companies' exposure to subprime mortgage collateral found manageable impact on stockholders' equity.

The New York-based rating firm said a Special Report analyzed full-year 2007 GAAP financial results for publicly traded U.S. property-casualty insurers in an effort to quantify exposure to, and credit quality of mortgage-backed securities with subprime and Alt-A collateral.

It also looked at exposure to, and underlying credit quality of municipal bonds insured by financial guarantors; and the likely surge in claims under directors and officers (D&O) liability and errors and omissions (E&O) business lines due to subprime mortgage-related issues.

Impact from write-downs, realized and unrealized losses from residential mortgage-backed securities, asset-backed securities, and collateralized debt obligations on stockholders' equity is within manageable range, the firm said.

While negative rating actions by Fitch in the U.S. p-c insurance sector due to subprime exposure have been very limited, Fitch said it expects poor collateral performance in subprime-related investments to continue in 2008.

The firm said in a statement that it also has growing concerns in the Alt-A sector and noted that highly illiquid, volatile market conditions have spread somewhat to other asset classes which could impact insurers' broader investment portfolio performance.

Fitch advised that it continues to monitor all developments in the subprime mortgage market, and also the p-c insurance industry's exposure to this market from both an asset and liability perspective.

The rating firm said the industry's concentration in high investment-grade securities will limit investment losses in this market. It is concerned, however, about the potential for further deterioration in the market and its affect on other sectors of the credit market.

The report is online at HYPERLINK “C:\Documents and Settings\dhays\Desktop\www.fitchratings.com”www.fitchratings.com under the headers: Financial Institutions > Insurance > Special Reports.