Insurance Quotes & Advice

Losses from the subprime mortgage collapse are finally catching up to the insurance industry.

“The collapse of the subprime mortgage market will lead to record losses for insurance companies, overtaking Hurricane Katrina, the worst natural disaster in U.S. history.”

Insurance losses to date from the subprime collapse is estimated at $38 billion and is expected to surpass the $41 billion the industry paid out for Katrina.

American International Group, the world’s largest insurance company has been the hardest hit so far with writedowns exceeding $11 billion.  Even more troubling has been the losses for the bond insurance industry which have caused severe disruptions in the normally placid bond markets.

This has caused a spillover effect to the rest of the financial sector as many institutions have had to writedown losses due to bond revaluation in their asset backed portfolios.  Municipalities are finding it especially hard to issue new debt even with their stellar default history.

While the insurance industry has historically fared better the other business sectors during a recession, even it has failed to escape the virus of the subprime mortgage collapse that has infected so much of the economy.  With credit markets steadily growing worse it’s not known how high these losses could rise.

When Wellpoint Inc., the nation’s largest health insurer by membership, unexpectedly cut it’s earnings forecast for 2008, it sent ripples through the entire industry.  The stock fell by as much as 29% in trading Tuesday and it’s rivals didn’t fare much better.

Analysts across the country were scrambling to downgrade their ratings for the entire sector, as the announcement took Wall Street by surprise.  The industry as a whole was expected to perform well in a weak economy as it typically does, but many feel that is no longer a given.

The reason given for the revised forecast was blamed on rising medical costs, which many analysts fear may be an industry wide problem.  Healthcare costs have been outpacing inflation for decades and everyone expects that to continue in to the foreseeable future.

However, for Wall Street to be off by that much, should send alarm bells ringing to consumers because this unexpected rise in costs will eventually get passed on to them.  This comes at a bad time for many Americans who are already reeling from soaring food and energy prices.

The problem of healthcare in this country has been growing problem for decades, for consumers as well as the government.  Every year healthcare is taking a larger percentage of disposable income for Americans and a larger chunk out of the annual budget for the government to fund Medicare.

It’s ticking time bomb that no one has figured out how to defuse. 

MBIA Inc., one of the largest companies in the beleaguered bond insurance industry had it’s top rating reaffirmed by both Moody’s and Standard & Poors over the last two days.  A downgrade would of meant a devaluation of the $673 Billion in debt that MBIA guarantees.

This would have created havoc in the already troubled credit markets as banks and other institutions would have had to write down these losses to their asset backed portfolios.  This news as well as the reported Ambac bailout plan eases somewhat the dark cloud that has been hanging over the entire financial sector.

MBIA had been scrambling over the past few months to raise capital to stave off the downgrade, which would of effectively ended any chance of new business for the firm.  The company also announced that it would stop writing polices for collateralized debt for the next six months.

While this does give a slight reprieve to the company, it’s not out of the woods yet.  Moody’s, while it confirmed MBIA’s rating still has a negative outlook for the company.  The firm still has a large exposure to sub prime debt and is expected to take at least another $4 Billion in losses in the upcoming months which is approximately 25% of it’s claims paying ability.

MBIA made it’s fortunes over the past two decades from insuring the relatively safe municipal bond market.  The company plans to separate it’s asset backed division from it’s municipal division in the next few years.