Advisen Projects Losses of $9.6B on D&O and E&O Insurers
Updated forecasts regarding the effect of the subprime mortgage and credit crisis on directors and officers and errors and omissions insurers were released by industry analysts with Advisen Ltd. on Thursday, projecting $9.6 billion in losses for both lines.
Advisen estimates $3.7 billion in E&O losses and up to $5.9 billion in D&O losses as a result of the financial meltdown that turned into a global crisis over the last several months. The revision comes in the wake of several class action lawsuit filings brought forth by federal and state regulators and law enforcement agencies in the wake of the financial market fallout. It is anticipated that several more suits will be filed in the near future as investigations into companies linked to the subprime crisis by federal authorities are already under way.
Subprime-related E&O losses are expected to add approximately 149 points to insurers' aggregate 2007-2009 financial institution loss ratios, while D&O losses will add 229 points to the 2008 loss ratio alone, according to the reports. Advisen said that much of the projected losses will be spread out over the 2007, 2008 and 2009 accident years, but that 2008 will bear the brunt of the losses.
David Bradford, author of the reports, and co-founder of New York-based Advisen, said the subprime losses will affect D&O and E&O underwriters and that insurance buyers "can anticipate substantial capacity and robust competition for their business through 2008." Deteriorating underwriting results and poor investment gains will likely end the soft commercial market in 2009, he said.
"The revised forecast reflects an increase in securities class action lawsuits, securities fraud suits brought by regulators and law enforcement agencies…and defense costs associated with those suits," Mr. Bradford said in a statement. "While E&O losses are coming mostly from the subprime fiasco, D&O insurers are exposed to ongoing credit crisis and bankruptcy risk."
Published on November 7, 2008
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