"they dont expect actual losses from the CDO tranches they have insured"
As far as I know, the terms of the insurance agreements are not publicly stated or else not easily found or understood for the various tranches.
1. What is a loss? What is an "actual loss?"
2. What is being insured? If there's a default, is it the principal that the insurers are required to pay, or part of the principal (if the insurers have offloaded some risk to reinsurers) ? And when - after x number of late payments, at foreclosure, after foreclosure when the houses/commercial properties are resold? Or is it only the payments on the mortgage that the insurers have to come up with? If it's the payments, for how long are the insurers on the hook? Some fixed number of years of principal/interest payments - say ten years' worth, or is until the entire loan is paid off, what?
Regardless though, there's no comfort feeling for me with "they dont expect actual losses from the CDO tranches they have insured" Sounds like denial of the situation at worst, lying next worst, or gibberish-for-the-media at best. |
