Non-prime mortgages to keep pummeling carriers

Major life insurance companies’ investments in non-prime mortgages are going to continue hurting their capital positions as the year rolls on, according to a study from Fitch Ratings Ltd. The New York-based ratings agency yesterday released a report analyzing 10 major life carriers’ investment exposure in non-prime mortgage-backed securities. “Non-prime” includes mortgages taken out by both subprime and Alt-A borrowers, whose risk profile fell between prime and subprime. Carriers in the study included American International Group Inc. of New York, Prudential Financial Inc. of Newark, N.J., and Amsterdam-based ING Groep NV’s U.S. life operations, which are based in Atlanta. AIG topped the list with the most non-prime exposure, with a total of $40.2 billion. Prudential came in second with $11.8 billion in exposure, followed by ING’s U.S. life operations, which disclosed $8.8 billion in exposure. The falloff in the value of residential real estate securities will lead to greater total capital losses for carriers, particularly as many insurers recognize impairments in the third and fourth quarters of 2008, Fitch noted. Last month, the ratings agency cut its outlook on the U.S. life insurance industry to “negative” from “stable,” citing concern about the slumping credit markets and their negative effect on carriers’ earnings and capital. Though Fitch said that the industry is relatively well-positioned to withstand the rough markets, investment losses and their toll on capital positions will be a focus of rating reviews for the near term.