From the Asia Times' Inner Workings blog:
The worst performer in today’s European equity route is Aviva (the old Commercial Union), down by nearly 30%, followed by Prudential PLC, Friends Po, Legal and General, and ING, all down around 20%. The insurance sector, down 8% overall, is the worst in the broad DJ Stoxx index....
...As I keep emphasizing, the pyramid scheme that links insurers and banks (insurers own the capital securities of banks and provide first- or second-loss protection for bank positions in a variety of ways) makes it impossible to keep the two sectors separate.
Insurers used to be yield hogs. AIG was the worst, writing protection with abandon on asset-backed Collateralized Debt Obligations, effectively shorting a mass of put options - which is how it racked up the worst corporate loss in American history last quarter. But the rest of the insurers did the same thing, albeit with a bit less greed, scarfing up barely-investment-grade tranches of asset-backed deals that amount to second-loss pieces, and similar parts of the capital structure in commercial mortgage backed securities.If the capital securities of the banks are at risk, starting with preferred stock, and then going to trust preferreds, subordinated debt, and so forth, then the insurers are in deep trouble....MORE