With stock markets dropping daily, investment funds closing down and the subprime mortgage crisis spreading to the $1.5 trillion commercial paper market, the insurance industry is understandably worried about its investments.
Lloyd’s insurer Kiln took the unusual step of issuing a bulletin on its web site (http://www.kilnplc.com) to reassure investors and policy holders that it has little if any exposure to credit defaults linked to subprime mortgages.
“In the context of the current market uncertainty with regard to the investment portfolios of insurance companies, Kiln is issuing the following statement which reiterates the company’s investment strategy and gives full details of the composition of its portfolio of holdings,” the bulletin began.
It went on to stress the Company’s strategy of seeking adequate investment returns “while preserving shareholders’ capital and avoiding excessive fluctuations in the non-underwriting results.” Its investments are low risk – “with the majority (95 percent) of syndicate assets and cash held in fixed income instruments with a rating of AAA, principally Government Bonds, or AAA rated money market funds.”
Kiln listed the investment details on its web site. It specifically noted: “The exposure to Asset Backed Securities (ABS) and Mortgage Backed Securities (MBS) is limited; Asset Backed Securities in the portfolio amount to less than £200,000 [$395,495] and within the Government Agency holdings Mortgage Backed Securities represent £36.5 million [$72.17 million] (6.7 percent of syndicate assets). All these securities are currently rated ‘AAA’.”
Kiln benefits from being a Lloyd’s insurer – it manages Syndicates 510, 308, 557 and 807 – as the financial rules are very conservative when it comes to investments.
The group has “no holdings of Collateralized Debt Obligations (CDOs) within any portfolio,” said the bulletin. “Kiln has no exposure to equities in either corporate, syndicate or pension fund portfolios; all the scheme’s equities were sold during the last quarter of 2006. The pension fund is invested in two pooled long bond funds. Cash is diversified and is invested in bank deposits of ‘AA’ rated UK banks and ‘AAA’ rated Money Market funds.”
CFO Peter Haynes added: “Kiln’s investment strategy is consistent with its cautious approach to capital risk management in general. We seek to protect our investment portfolio by means of diversification and credit quality; at this stage the recent market turbulence related to the financial markets’ concerns over the sub-prime sector has not had a negative effect on our asset base.”
Source: Kiln
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