Tuesday, February 05, 2008

CDOs being rated downwards

Collateralized debt obligations may be downgraded as many as five levels as mortgage-related losses force Fitch Ratings to review its criteria for $220 billion of the securities.

The biggest cuts will be to AAA rated CDOs that are based on credit-default swaps and aren't actively managed, according to guidelines proposed by Fitch today.

CDOs that package high- yield assets may be reduced as many as three levels for the portions first in line for losses.
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3 comments:

Anonymous said...

Mr Tan

With your experience in SG insurance industry, do you think this will affect the returns on our policies? Or premium set to increase when insurers make up for losses?

Thanks

February 06, 2008 12:12 AM
Tan Kin Lian said...

I do not know how much of the assets of life insurance companies in Singapore are invested in CDOs, but I believe that it should be a small proportion (except for one American company).

If a company suffers a big loss on CDOs, they will have to reduce their participating policies, or top up their capital. This is not likely to affect the premium rates, which are fixed for the term.

In the case of a general insurance company, they cannot increase their premium rates to cover invetment losses, as the customers will switch to another insurer.

February 06, 2008 5:50 AM
hongjun said...

There will be an expected further writedowns by local banks as well. It's going to be a tough Rat year ahead.

hongjun

February 06, 2008 9:09 PM

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