Tuesday, 27 December 2011 11:25

Beware Even Those "Safe" Insurer's Portfolios... The Newest BoomBustBlog Forensic Report Is Available

The latest BoomBustBlog forensic report is now available for download to all paying subscribers in the Insurers, Insurance & Risk Management section of the site. We performed a very thorough job in dissecting this one, and please keep in mind our traditionally conservative bent. All who follow me know that I fully expect to see a full blown European sovereign debt, banking and real estate crisis in the near to medium term, and the numbers presented in these report herein take a very, very conservative view.

From the professional version of this report...

STRESS TESTING THE INVESTMENT PORTFOLIO

We have conducted stress tests on the insurance short candidate's investment portfolio to show the combined impact of the sovereign debt crisis on corporate bond devaluation and equity market volatility. The stress test also incorporates the possible ramifications of broader financial sector impairments and its consequent impact on said company.

The objective of the stress test exercise is to assess the risk profile and resilience of this company's financial position and to come out with possible impact on its Embedded Value.

STRESS TEST ASSUMPTIONS IN 3 DIFFERENT SCENARIOS

We have assumed three scenarios assuming different rates of impairment for the insurer’s four asset classes that together account for nearly 90% of its total invested assets as of June 30, 2011.

Stress Test Scenarios

Sovereign Debt

Corporate Bonds

Listed Equities

Real Estate

Impairment Loss – Scenario I

10%

15%

15%

10%

Impairment Loss – Scenario II

13%

15%

20%

15%

Impairment Loss – Scenario III

15%

20%

25%

15%

Other Assumptions:

We have assumed some additional assumptions to refine our stress test. As disclosed by the Insurer, a few of the plans require policy holder participation on losses / defaults. We have assumed such participation... 

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