Exceptions to Current Risk Dichotomies.

This article presents information on fundamental and speculative risks that are being insured by commercial insurance companies. Two examples of financial guaranty insurance are lease insurance and private mortgage insurance. Lease insurance is available from two companies in the U.S.: Mortgage Guaranty Insurance Corporation and United Guaranty Corporation. The companies use identical contracts: the coverage is non-cancellable and premiums are not refundable. Private mortgage insurance is written for the purpose of guarantying a lender payment under a mortgage loan in the event of default by a borrower. An analysis of the operations of financial guaranty insurance, particularly in those areas with a significant volume and history of performance, indicates that commercial insurance of these speculative and fundamental risks is viable only through a skimming of the market; that is, only feasible through a government subsidy of poor risks. Since there is no requirement that an insurer write all exposures in the market and underwriting selection is a key component of all commercial insurance, the inescapable conclusion is that at the upper end of the market both fundamental and speculative risk are commercially insurable.