Subprime mess may spill to D&O market.As concern over losses in the U.S. subprime mortgage market moves from the boardroom to the courtroom, insurers who underwrite the liability of major financial institutions are preparing for a new rash of claims.
At least 10 securities class actions have been filed so far, and that number is likely to grow, according to according to
1. As stated or indicated by; on the authority of: according to historians.
2. In keeping with: according to instructions.
3. Jill Sulkes, a managing director in Marsh Inc's Financial Institutions Practice.
In addition to suits targeting the growing number of mortgage originators that recently have filed for bankruptcy, she expects subprime-related claims for directors and officers liability could be made by banks, including investment banks The following is a list of investment banks Financial conglomerates
Large financial-services conglomerates combine commercial banking and investment banking, and sometimes insurance. , hedge funds, and real-estate investment trusts.
"Many hedge funds do not carry D&O coverage, or in their case, a partnership liability policy, since most hedge funds are formed as limited partnerships," Sulkes said. "Not all hedge funds purchase that kind of coverage. In fact, it's much more rare than with publicly traded companies publicly traded company
A company whose shares of common stock are held by the public and are available for purchase by investors. The shares of publicly traded firms are bought and sold on the organized exchanges or in the over-the-counter market. who do buy D&O insurance."
At least one suit filed targets an insurer. A putative class-action suit Noun 1. class-action suit - a lawsuit brought by a representative member of a large group of people on behalf of all members of the group
class action filed in U.S. District Court in Philadelphia accuses mortgage insurer Radian Group Radian Group Inc. (NYSE: RDN) is a credit enhancement company, offering mortgage insurance, financial guaranty insurance for public finance, asset-backed and structured finance transactions, reinsurance and other financial services. Inc. of concealing from investors the full extent of subprime losses suffered by loan servicer Credit-Based Asset Servicing and Securitization Securitization
The process of creating a financial instrument by combining other financial assets and then marketing them to investors.
Mortgage backed securities are a perfect example of securitization.
May also be spelled as "securitisation. LLC (Logical Link Control) See "LANs" under data link protocol.
LLC - Logical Link Control , often referred to as C-Bass, in which Radian holds a 46% stake. Both Radian and fellow mortgage insurer MGIC MGIC Mortgage Guaranty Insurance Company
MGIC Montana Geographic Information Council Investment, which also holds a 46% stake in C-Bass, have confirmed they may lose their entire combined $1.03-billion investment in the company.
R. Mark Keenan, chairman of the Financial Institutions Group with New York-based policyholder firm Anderson Kill & Olick PC, expects "a smorgasbord (of claims) that really is only limited to the inventiveness of plaintiffs' counsel."
"Where I see the majority of the claims are investor claims on misrepresentations on your financial statements, or material admissions on failing to get an investor out. That could go into pensions or fiduciary liability," Keenan said.
Sulkes noted that fiduciary duty claims could include trustees' lawsuits against lenders or underwriters on behalf of investors, lawsuits by investors against trustees who were responsible for the distribution of cash flow, as well as suits filed against trustees of major pension funds claiming violations of the Employee Retirement Income Security Act The Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C.A. § 1001 et seq. (1974), is a federal law that sets minimum standards for most voluntarily established Pension and health plans in private industry to provide protection for individuals enrolled in these plans. .
"Generally speaking, so far, insurers have not been imposing any type of wholesale exclusions or broad-brush exclusions that specifically relate to the mortgage issues, or subprime for that matter," Sulkes said.
But Thomas Zacharopoulos, leader of the management risk practice for Integro Insurance Brokers, expects the claims to have only a negligible impact on pricing in the D&O market. In a statement, be said it was "premature to assess the impact of the subprime mortgage crisis on the overall D&O market" and that "an increase in litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute.
When a person begins a civil lawsuit, the person enters into a process called litigation. should not necessarily trigger an increase in the overall rate environment.
"While the financial sector may experience firming rates, the spillover spill·o·ver
1. The act or an instance of spilling over.
2. An amount or quantity spilled over.
3. A side effect arising from or as if from an unpredicted source: effect into other sectors has yet to be determined," Zacharopoulos said. "If history is an indicator, the recent financial crises in Asia, Russia, and (hedge fund) Long Term Capital Management during the late 1990s had minimal impact on the global D&O market."
In addition to directors and officers liability, Sulkes said other policies potentially could provide coverage for impacted firms. She expects claims for errors and omissions errors and omissions n. short-hand for malpractice insurance which gives physicians, attorneys, architects, accountants and other professionals coverage for claims by patients and clients for alleged professional errors and omissions which amount to negligence. against, for instance, accountants and underwriters, as well as fidelity bond An insurance device in the form of a personal guaranty that protects against loss resulting from disreputable or disloyal employees or other individuals who possess positions of confidence. claims. Sulkes said that, given the broad reach of the mortgage market, claims could be lodged by investors in a broad array of industries since U.K. and European firms have considerable exposure to the U.S. collateralized debt and loan markets.
"I think we're still at the beginning, and a lot depends on where the market goes on this," Keenan said. "If the (Federal Reserve) still lowers interest rates and the market solidifies a little, you're going to see a lot less. But if subprime just falls and falls into the depths of hell, it will all come out."
D&0 Market Share for Primary Insurers 2006 Premium Market Company Volume Share American International Group 99,683,822 37.4% Chubb Insurance Group 58,683,858 22.0% XL Insurance 17,602,235 6.6% Aegis 11,384,985 4.3% Admiral Insurance Co. 10,856,659 4.1% ACE 10,167,927 3.8% Lloyd's of London * 10,021,520 3.8% Hartford 8,746,087 3.3% Old Republic 7,838,406 2.9% St. Paul/Travelers 7,412,718 2.8% * and other London underwriters Source: Towers Perrin's 2006 Directors and Officers Liability Survey