Can You Insure Against A Housing Bubble?
Finite reinsurance is a term anyone concerned about the housing bubble should become familiar with. All those mortgage backed securities have guarantors and they like to spread the risk with reinsurance. The problem is they are complicated to account for and more than one firm is in trouble.
Example, AIG and the former power suit of them all, Hank Greenberg. "The Federal Bureau of Investigation has become the latest regulatory agency looking into the potential abuse of so-called finite or non-traditional reinsurance - the products at the center of AIG's accounting troubles."
"The giant insurer also said Sunday that some of its controls over financial reporting weren't up to scratch. One problem was 'the ability of certain former members of senior management to circumvent internal controls,' AIG said."
The rating agancies have presided over this mess but are trying to get back on top of the issue. "'Under the Microscope' is an apt theme for Standard & Poor's Ratings Services' twenty-first annual insurance conference to be held June 13-14 in New York. CEOs and other senior executives from leading companies such as AIG, Aon, CNA, and XL Capital, along with Standard & Poor's credit analysts, will be assessing key industry issues."
"Among the conference sessions: Is there 'Good' and 'Bad' Finite Reinsurance? How can the product be bought and sold with confidence that it's accounted for correctly?"