Report Reveals True Extent of Loss on D&O From Sub-Prime

The total loss to the insurance industry on Directors’ & Officers’ cover as a result of the sub-prime sector could top $2 billion this year, rising further until 2009 according to an industry report released today.

The news sees a valuation put on the expense to the insurance industry for failing of directors and officers of companies covered by insurance policies as a result of certain damaging investment decisions that have led to losses across investment portfolios.

According to a report released today by Guy Carpenter & Co., the sub-prime collapse has had a significant effect on the insurance industry as a whole, particularly in respect of professional liability insurance cover.

The report highlighted that whilst this year would see a total of $2 billion claimed, it would only be the beginning of the problems for the industry which could continue to feel the effects well into the next decade.

Directors’ & Officers’ insurance products cater for liability arising from decisions taken by officials of a company. In light of the sub-prime situation, which has seen many managers criticised for their gung-ho approach to high risk investment, there have been a growing number of claims on policies following legal action against the decisions of directors involved.

As a result of lengthy litigation processes the report today predicted that there could be a wave of claims in the coming years relating to the situation as more actions make their way through the courts, which could leave professional liability insurers further hurt.

Whilst the situation was painted negatively for professional liability providers, it is thought that the situation could have a positive effect on the reinsurance industry, as a result of making contracts of reinsurance more valuable to insurance providers in future years.

Category: Business Insurance News