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Fitch Says Italian Insurers Can Not Pass Sovereign Losses => The Time Of ASSGEN, ALZ CDS Has Come
For once, Fitch took the words right out of our mouth, and in the process reminded us that the time of the stupendously named ASSGEN CDS (357 bps, +41 today) is here (for our previous coverage on Generali, read here, here and here). And just because we like to live dangerously, we believe the time has come to knock on the door of the grand daddy of all: Pimco parent, German uber-insurer Allianz, where the crisis will eventually hit like a ton of anvils if and when things really get out of control. ALZ CDS + 12 at 136. Going much wider. After all, recall that the deus ex machina of the EFSF as a CDO Cubed came from, that's right, Allianz. So now that it has failed, guess who has the most to lose... If we had more time we would attach the recent Credit Sights piece on ALZ here, but we don't: we hope readers can track it down on their own.
From Fitch:
FITCH: ITALIAN INSURERS CANNOT PASS ON ALL SOVEREIGN LOSSES
Fitch Ratings-London-09 November 2011: Contrary to what many commentators are predicting, Italian insurers may not be able to pass on most of the losses incurred from an unlikely default of Italian government debt.
Based on our 'A+'/Negative rating of Italian sovereign debt, Fitch believes that Italian government bonds are a low default risk. However, in the extreme scenario of a sovereign default, the ability of insurers to pass losses on to policyholders would be significantly impaired, as the return on customer portfolios may be below the minimum promised to policyholders. Insurers would be liable for the additional losses.
Life products offered by Italian life insurance companies typically distribute 85% of any investment return to policyholders and keep 15% for the company. In many policies, the absolute return cannot be less than a minimum guarantee that the insurer is contractually obliged to pay. If the investment returns are below this minimum, the insurer must pay the guaranteed return from its equity.
The situation is worse for insurers in Italy compared with other jurisdictions, such as Germany, because there is not an explicit ability to defer profit sharing. This means there is no capital buffer from previous unrealised profits on the company's balance sheet.
Historically, Italian companies built a cushion of unrealised gains largely on domestic sovereign debt that could be used to cover guarantees when investment income was insufficient to meet the guaranteed return. This cushion has shrunk in recent months as credit spreads on Italian debt have widened, driving down the value of existing bonds and giving insurers less protection against further market volatility.
In the unlikely scenario of a sovereign default, the realised losses on Italian debt holdings could damage insurers' capital adequacy to a larger extent than the traditional profit-sharing split would suggest. This is one of the assumptions underpinning Fitch's Negative Outlook on the life and non-life sectors in Italy.
Theoretically the insurers are also exposed to liquidity risk if policyholders start redeeming their policies early. We do not believe this to be a significant risk. The rate of policy lapse is around 8% and we see this as a structural feature of the market. Many policies are partially insulated from this risk through early redemption penalties.
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Olive oil is a good lube to help "pass" the losses.
that would be good solution for Greece economy!
Have you been dabbling, authorized or not, in the derivative markets? Do you feel irritable, depressed, melancholy, hopelessness or anxiety? Have you had thoughts of harming yourself or others, or suicidal ruminations? Do you work for a too-big-to-fail that actually might? Are you a creditor of what's far more likely to be an insolvent rather than solvent sovereign?
Maybe it's time to ask your doctor about ASSGEN ™ ® .
ASSGEN ™ ® is not right for everyone suffering from these symptoms, but it may be right for you.
Get your MOMO back, and go for the ten bagger, even if it's just a pharmaceutically induced hallucination, with ASSGEN ™ ® .
*ASSGEN carries with its use the risk of serious, sometimes fatal side effects, including, but not limited to projectile vomiting and diarrhea, bouts of uncontrolled rage, severe anxiety, panic attacks, sweaty and hairy palms, heart palipations, increased perspiration, anal leakage, involuntary discharge of bodily fluids from any and all orifices, narcolepsy, insomnia, schizoid-affective disorder, complete and total financial ruin, and the very real prospect of completely and totally financially ruining anyone who listens to you or who is foolish enough to invest their money with you. If you have an erection lasting more than four hours after taking ASSGEN, there's something seriously wrong with you, but why fight it?
ASSGEN ™ ® .. Isn't it time you got your risk on?
Priceless! Absolutely priceless. I'm copying this text for bad days ahead. Thank you.
Very creative. Thanks
This mess is becoming to big to fail but also to big to bail out. The EU will be demanding it's insurance on those bonds (the US insured alot of them) and they will be surprised.
AIG-like?
AIG-love!
Wonder how insulated the eastern banking estab is from this.
It would appear there is no safe place for your currency any longer.
Don't worry. Your currency won't be currency any longer.
"If we had more time we would attach the recent Credit Sights piece on ALZ here, but we don't: we hope readers can track it down on their own."
Too busy getting ready for the afternoon rumor?
And Europe continues on but lets not forget about US.
GM working its way back to 0.
Government Motors going to 0 would mean Bernank joins UE line.
The contractions are shortening...something horrible is about to be birthed unto the earth.
mrs. bernank giving birth to bernank jr.?
Nooooooooooooooo!!!!
no... bullish for allianz for next quarter's earnings... see BAC
Make no mistake by the start of next year we are fucked.
Optimist.
Not if you have been preparing for it by buying beans,bullets, band aids,bullion,booze, and boobs
Tyler, all of this bad news is getting in the way of a perfectly good afternoon ramp up. Please consider posting between the hours of 6am-noon EST so we can play both sides. Thanks.
Funny.Good point though!
Fuck Bank of America.
Won't be long before they are trading with a 5 handle.
All CDS exposure is hedged. Dont cha know?
That's like saying Nuclear power will replace Oil.
There's not enough nuclear fuel on the planet.
dont worry, Kashkari is on it
anvils, BiCheZ!
could it be time for...
...you know! her!
(pic)======> brunhilde
Il bacio della morte brought to You by Fitch. Eat your losses bitch!
Pimp-Co.
Wowza. Just looked at the AZSEY 3 month candle chart. Trading down 10% at 9.65 presently. Has a gap down to 8.05 that has not filled. Yet.
Anybody know the best way to short this? With AZSEY? I don't think there is any other way to short it with only an eTrade account.