The Sound of the Next Shoe Dropping?

AIG has been in the news today, and it hasn't been particularly good news. In fact, it may be the sound of the next shoe dropping in the current financial crisis that has been unfolding in slow motion for the past six months or so. AIG's outside auditors have reported that AIG has not made proper provision for losses related to declining values of "credit default swaps involving collateralized debt obligations."

What it all means is that the sub-prime mortgage mess/credit crunch mess is impacting this huge insurer. And it raises the question of how much impact will this evolving financial disaster impact major insurance companies--with resulting impact on the rates insurance consumers pay for Workers Compensation insurance and other lines of commercial insurance.

It's been generally thought that major property and casualty insurers were not so exposed to financial harm from the financial crisis that's been devastating banks and mortgage companies.
One can hope that's true, but historically broad based financial shocks have often led to shifts in the commercial insurarance market. My own gut feeling is that this current mess is far, far from over, and before things get better they'll get significantly worse. And that means the pressure will be on for higher rates.