U.S. Insurers’ Subprime Exposure ‘Minimal,’ Says Fitch Ratings

According to a new report from Fitch Ratings, the U.S. property casualty insurance industry’s risk from various subprime mortgage exposures is “minimal.”

Fitch said it based its conclusion on an analysis of statutory filings for the entire industry and GAAP statements for the largest public companies.

Consequently, Fitch indicated that it does not expect to take negative rating actions on any U.S. property casualty insurer due to subprime related credit issues for the remainder of 2007.

The report notes: “Increased default rates in subprime mortgage portfolios have resulted in significantly higher cumulative loss expectations, and consequently, rating downgrades in primarily the subordinated classes.”

Fitch added that it expects further deterioration in subprime mortgages, specifically in the 2005 and 2006 vintage years resulting from a number of adjustable rate mortgage loans moving into the reset phase.

“The combination of ‘teaser’ interest rates on adjustable rate mortgages and institutional money flowing into the mortgage market seeking higher returns resulted in intense competition in the subprime mortgage origination market. The reason vintage years 2005 and 2006 are looked at with more scrutiny is because increased competition in the subprime mortgage arena led to relaxed underwriting standards.”

The full report is available on the rating agency’s web site at: www.fitchratings.com