The KBW Insurance (KIE) exchange traded fund (ETF) is in the doldrums.

The ETF’s steep drop to an all-time low is primarily because of news that American International Group (AIG) has been hit harder by the subprime crisis than it previously let on, reports Wangfen Zhou for Thomson Financial. AIG is the fund’s third-largest holding at 7.9%.

AIG’s shares fell to a 52-week low after an insurer said that auditors fond a material weakness in how it reports the value of certain credit default swaps, the Associated Press says. The news has investors worried that the company is going to report more losses.

The company filed with the Securities and Exchange Commission (SEC) today, saying it will have to change the way it values credit default swaps (CDOs), which are funds with slices of bonds. Some of those bonds are backed by mortgages.

Back in August, AIG called exposure to subprime debt "minimal."


The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.