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Someone asked the other day who had insured the rating agencies against errors and omissions by directors and staff, and which companies covered the main investment banks. They wanted to know because they reckoned a lot of money will be paid out on policies if those who have lost money in the credit crunch decide to take legal action against those who sold them the products - as indeed is already beginning to happen in Germany. They wanted to know how the credit crunch is going to hit insurance.
Interestingly, experts in the London market claim most of the insurance pain will be felt in America, and they point the finger of suspicion at giants like AIG, XL, Travelers and Chubb as among those most likely to take a hit. But at this stage no one has any feel for how much of a hit; estimates range from £3 billion to £10 billion.
They do agree, however, that if litigation moves from the wholesale to the retail level, with a lot of class actions drawing in the minor players, then this will come to London, and might have a disproportionate effect. It could be big - up to £20 billion. But these things take so long it could be three or four years before we know for sure.
The much more immediate threat comes on the asset side of the insurance company balance-sheet. Most insurance companies have some subprime collateralised debt obligations (CDOs) - indeed, a study of US filings has just listed those disclosed in recent industry returns. But while there are one or two companies with a heavy exposure - XL again - across the industry it is not much to worry about.
The real threat is more subtle. Most insurance-company assets in this country are invested in fixed income of reasonable quality, but even these have seen a major widening of spreads as the credit crisis unfolds. This will not matter if the companies are able to hold the debt to maturity. But if theywere forced to sell now, given the illiquidity in the market, they would book heavy losses.
The insurance industry is therefore even more vulnerable than usual as we approach the hurricane season. If there is a major event - industry code for some major insurance loss, not necessarily just a hurricane - the companies could come under pressure.
Normally they rely on bank letters of credit to find the short-term cash to pay out on claims, but the banks are sure to wriggle on these in current conditions. The debt and equity markets would presumably also be closed to a company with a sudden need for funds, so those fixed-income assets might have to be dumped in the market for what they would fetch.
It is an environment where cash will be king, but the insurance industry generally speaking does not do cash - at least not in the amounts it might require when all the usual avenues are closed. The message is that if the wind really does blows badly this autumn it will do the insurance industry no good at all.
It just doesn't float our Boat
Firms in the City are discovering that competition in the securities markets is not always everything it is cracked up to be.
Before Mifid, the European Union directive designed to make Europe's capital market function as one, it was a common complaint among investment bankers that if they traded on the stock exchange, they were obliged under its rules to report to it the trades they made. Because they also needed to know what everyone else is doing, they had in addition to pay the Exchange for a data feed which listed all the trades happening across the market, more or less in real time.
The Stock Exchange knew how to charge for this information, and indeed for some years it has accounted for a significant proportion of its revenues, but the users would beef that they were in effect paying to buy back some of their own data.
The investment banks wound themselves up so much about this that when Mifid came along they decided to launch their own data-gathering service, which they called Boat - in competition with the Exchange. Unlike some of their other initiatives, Boat actually got launched - and indeed sold - and it is now doing its job of data gathering and dissemination.
But are the investment banks happy? They are not, because now instead of one source of information they have to cope with two, Boat and the Stock Exchange, and apparently they are frequently confused by double counting, because it often happens that the same trade appears on both services.
It is said that there is far more confusion and discontent now among the dealers than there ever was when the Exchange was the monopoly provider of information.
