Subprime Mortgage Crisis - What the heck is that?

Questions:-

1. What is subprime mortgage crisis?
2. Would it affect Malaysia's insurance companies?
3. For policy owners, do we really need to surrender our policies?
   

What is subprime mortgage crisis?

The subprime mortgage crisis is an economic problem characterized by contracted liquidity in the global credit markets and banking system. An undervaluation of real risk in the subprime market is cascading, rippling and ultimately adversely affecting the world economy.

Please see below for the simple illustrations:

#1 Applying mortgage loan via broker to buy a house.



#2 Do not requires a stable income or good employment track records.


#3 Done!!!



#4 A few weeks later, at the Bank.....



#5 Let's see what the smart guys are doing...



#6 Start to repackaging....


#7 Creating financial derivative assets.



#8 Nice statement, 'Buy crap is crap'.


#9 Involves speculation on real estates prices.



#10 Confusing eh...



#11 Mortgage loans segregation based on it's quality.


#12 Pay as good as you have.


#13 High risks, high returns.


# 14 Here comes the rating.


#15 This is their jobs.


#16 Where to sell it?


#17 And the buyers are..... not this groups....



#18 Here they are....


#19 Sell the good ones, keep the bad.


#20 Hiding the bad ones.


#21 via 'SPV'.


#22 Shoot the accountants?


#23 More transparency?.


#24 Hah hah...


#25 Now, here comes the problem...


#26 Borrowers are started to default in their repayments.



#27 So called AAA rating financial instruments.


#28 More craps.


#29 House prices always go up, really?


#30 Fucked up - bad assumptions


#31 Again...


# 32 Fucked up too.


#33 Everybody is fucked up.


# 34 =O


#35 More fucked up.



#36 THE END.

S0urce: Idiots Guide to subprime.

Would it affect Malaysia's insurance companies?

Under the Sec 38(1) of Insurance Act 1996, a licensed life insurer shall establish and maintain a separate insurance fund for its Malaysian policies, for its foreign policies and for its shareholders' fund.

The insurance fund is belong to the policy owners whereas the shareholders' fund is belong to the owner of the licensed insurer i.e. the shareholders. There is a clear distinction of moneys or funds which are belong to the policy owners and the shareholders.

Moreover, all premium moneys received by a licensed insurer in respect of policies of a class to which the insurance fund relates and which are issued by it or under which it has undertaken liability.

Most of the moneys of the life insurers are invested locally. Under the Central Bank's foreign exchange administration rules, it allow the net asset value limit for overseas investment to be raised to 30% from 10% effective April 1, 2008. There is a minimal exposure to the subprime mortgage crisis by the life insurance business except for the investment-linked funds (I guess). If you ever bought an investment-linked fund where the moneys are being invested globally, you may want to check with your insurers or financial consultants on the impact.



For policy owners, do we really need to surrender our policies?

If you are referring to the life policies, why should we need to worry (in my opinion)? Unless, we are talking about those unit trust or investment-linked funds where the moneys are being invested globally on certain markets or continents which are affected by the subprime mortgage crisis.

Anyway, if you are thinking to surrender your policies, there are many factors that need to be considered. Not so easy huh.

We have about the same insurance legislation like Singapore, but I wonder why they want to surrender their policies? Coupled with the departure of it's GM, even worst. Wrong timing eh.

DISCLAIMER: It's best to consult your insurance financial consultants on the impact of subprime crisis to your insurers.