Reports of new write-downs and revelations of banks'
increasing exposure to sub-prime debt have been an ongoing
feature of 2008. Although it is not yet clear precisely what
and how many problems for the reinsurance market might be
caused by the sub-prime crisis, the types (and numbers) of
claims being made are becoming clearer, in the US at least.
Background to the sub-prime crisis
Sub-prime debt was organised into complex securitised
structures, which are ultimately underpinned by real assets
(properties which are the security for sub-prime mortgages). If
those assets lose value, so do the securities which use them
for collateral. Losses may also occur where, even though the
real assets at the bottom of the 'chain' may
still have value, if there is no market for a securitised
product, its value has to be written down, to zero in extreme
cases.
