Insurers investing in structured credit have been a particular concern. Both the Financial Services Authority in the UK and the Federal Reserve in the US have drawn attention to this. In 2002, FSA chairman Howard Davies suggested that insurers didn’t have the resources to assess credit risk transfer in synthetic CDOs.
It wasn’t a tough call: European insurance companies in particular were big buyers of equity tranches of cash CDOs in the 1990s that disintegrated in the 2001-02 credit crunch.
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