Global credit crisis likely to have US$9.6-billion impact on liability insurance

Advisen forecasts a US$9.6-billion impact on liability insurance loss ratios as a result of the global credit crisis.Of that total, it predicts a US$3.7-billion impact on errors and omissions (E&O) insured losses and US$5.9 billion in director and officer (D&O) insured losses.The financial institution segment of the 2007-09 aggregate E&O loss ratio will likely gain 149 points, with the greatest impact in 2008, Advisen suggests. Advisen in February had forecast US$3.6 billion of insured D&O losses stemming from the subprime mortgage market and the ensuing credit crisis.Since that time, the crisis has mushroomed into a “global financial calamity” leading Advisen to revise its forecast. “The losses are spread across 2007, 2008 and 2009, with the largest amount incurred in 2008, resulting in an additional 229 points to the loss ratio for the financial institution (FI) segment of the D&O market,” the report says.”While E&O losses are coming mostly from the subprime fiasco, D&O insurers are exposed to ongoing credit crisis and bankruptcy risk,” it continues. “The actual loss is coming from 418 subprime and credit crisis-related lawsuits, including 124 related security class action suits, and bankruptcies triggering D&O Side-A coverage.”AIG has had top market share in both financial institution D&O (19%) and E&O (34%) and Advisen expects new insurers to enter the market.The soft phase of the overall commercial lines market cycle will bottom out by the second quarter of 2009, and a period of rising premiums for all commercial lines, including D&O and E&O will ensue by the end of the year, it added.