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February 3, 2009

Corporate Defaults as Subprime for Insurers

Could corporate debt defaults turn into subprime for the insurers? Interesting new report out arguing as much:

Corporate debt defaults may cost U.S. life insurers “substantially” more than losses on securities linked to subprime, Alt-A and commercial mortgages, said Eric Berg, an analyst at Barclays Plc.

Corporate defaults are poised for a “significant” increase this year as the recession deepens, Berg, based in New York, said in a research note yesterday. The American Council of Life Insurers estimated the industry, led by MetLife Inc. and Prudential Financial Inc., holds $1 trillion in corporate debt.

“None of the life insurers we studied appear to be doing a particularly good job” of picking bonds backed by companies, Berg said. “Understandably, investors are concerned.”

More here.

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