Wednesday, December 10, 2008

Much more of this to come...

Actuarial expertise with physical systems (cars, lifespans, health, etc.) does not necessarily translate over to expertise in managing the more "convex" (things can go bad...very, very quickly) risks embedded in financial products.

Like Bond Insurance, for instance. This is a much more complicated system, defaults tend to cascade (like we are seeing now), and multiple players require massive capital infusion...simultaneously.

The Insurance industry as a whole face even more difficulty given the current yield curve. It is difficult to fund long-term liabilities when insurance regulations (the individual states regulate insurance companies) require you to hold much of your investable capital in bonds, and much of those in Treasuries and other "safe" investments...which now are yielding...2%.

XL Capital hires Goldman to explore sale: report
Wed Dec 10, 2008 5:35pm EST
NEW YORK (Reuters) - Bermuda-based reinsurer XL Capital Ltd (XL.N: Quote, Profile, Research, Stock Buzz) has hired Goldman Sachs as an adviser to explore a sale of the company, Bloomberg reported on Wednesday, citing unnamed sources.

XL shares fell as much as 51 percent before closing down 32.6 percent, or $1.89, at $3.90 on the New York Stock Exchange. The stock has lost 94 percent of its value over the past year.

XL officials did not return several calls seeking comment, and Goldman Sachs declined to comment.

Last month, the insurer posted a quarterly net loss of $1.65 billion, hurt by charges related to a stake it held in troubled bond insurer Syncora Holdings Ltd (SCA.N: Quote, Profile, Research, Stock Buzz), impairments and investment losses.

Analysts said XL has been able to get rid of the liabilities by making a payment to Syncora, and has strong business prospects. Still, the list of potential buyers are slim.

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