Actuaries Scrambling to Respond to Sub-Prime Crisis
 

Here is a snippet from an email I just got

Here is a SWAG, without consulting any actuaries:

In the future, banks should not lend money to people who do not have the income to support the payments.

Hey, that's just me, though. I'm no professional. It will be really interesting to see what the actuaries come up with after months of analysis.

That's not the source of their concern. What is of interest is when insurance companies buy mortgage-backed securities are they able to properly assess the quality of the asset and appropriately model and manage its associated risk.

Insurance companies don't hold much in the way of equities; their portfolios are pretty conservative. Mortgage-backed securities are an attractive investment option for insurance companies given their alleged low risk, rate of return and relative predictibility of the timing of the cashflows.

Since MBS represent a sizeable portion of an insurance company's portfolio, it leaves them very exposed if they end up being significantly less secure an investment than originally believed. This going to cause a significant shakeup in the industry in terms of investment strategy, ERM and cashflow testing.

on a serious note, i assumed that most purchasers of mortgage-backed securities were hedge and mutual funds, as opposed to insurance companies.