Rating agency Fitch comments on subprime liability

Rating agency Fitch issued a report this week regarding the subprime mortgage exposure for property casualty insurers. According to Fitch:

Most early estimates have placed industry-wide insured losses at $3 billion to $4 billion, although some are as high as $9 billion, and Fitch believes the majority of these losses will be borne by the largest writers of primary and excess D&O. As a whole, this group has reduced its reliance on reinsurance in recent years, so reinsurers will likely experience less of an impact.

Likely targets in lawsuits include publicly traded financial service giants who underwrote the mortgage-backed securitizations and also took large write-downs in the last half of 2007 and thus far in 2008; lenders who originated the loans as well as mortgage brokers and mortgage-related service companies who declared bankruptcy; auditing and accounting firms who signed off on financial statements; law firms who drafted legal documents related to securitized transactions; bond insurers who “wrapped” the transactions; and investor suits against mutual funds, investment managers and hedge funds.

In addition to this claims exposure, Fitch saw only modest impacts to the asset side of insurers balance sheets.

Notably, Fitch left rating agencies like itself off its list of possible defendants in subprime-related litigation. While Fitch appears to have been spared a lawsuit so far, securities class actions have been filed against both Moody's and McGraw-Hill, the parent of Standrd & Poor's. New York lawyers David Grais and Kostas Katsiris have a thoughtful paper about the possible theories against the rating agencies at this link.

Comments

[denver home mortgage]

Sub prime loans were all ways a risk

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