May 19, 2024

HIG Implodes

After the recent implosion of AIG due in large part to their massive credit default swap positions on sub-prime mortgages, investors did not need much encouragement to sell HIG after it disclosed having CDS exposure on AIG debt.  This, along with disclosure of holding debt securities of LEH, AIG and WM in their asset portfolio as well as a possible credit downgrade was enough to cause a brutal 20 point sell off at one point, for an intraday loss of $6 billion dollars.

HIG recovered half of this loss by day’s end but still ended down 18% and the cost of buying insurance on HIG’s debt jumped by over 40%.  We have seen this type of horror show too many times this year.   Management should immediately take steps to raise capital, reduce the dividend and make full disclosure of what CDS exposure they have, before rumors become more important than the facts.  It is interesting to note that despite the brutal sell off of many insurance companies this year and the fast collapse of AIG, the SEC did not place HIG on their restricted short sale list.

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