Study: Subprime Crisis Not Materially Affecting D&O

February 24, 2008

The crisis in the subprime mortgage market has had little impact on availability, cost or policy conditions of directors and officers liability (D&O) and errors and omissions liability (E&O) insurance policies, according to a survey of financial sector risk managers and chief financial officers by Advisen Ltd.

More than 90 percent of commercial banks, investment banks, mortgage lenders, real estate investment trusts and other companies in the financial services sector have renewed, or expect to renew, their D&O and E&O policies at the same or lower rates. That is based on responses from 110 insurance buyers.

The lack of reaction to the crisis is despite more than $200 billion in write-downs reported to date from mortgage related investments and more than 175 lawsuits already filed against companies involved in the subprime mortgage market, noted Advisen. More write-downs — and more lawsuits — are anticipated in the coming months.

“We launched this survey when we didn’t detect a reaction to the subprime meltdown in the D&O and E&O insurance program data we routinely compile from insurance buyers and brokers,” said Dave Bradford, Advisen’s chief insurance industry analyst. “We felt there had to be more to the story, but the survey results confirm our initial observations — all is quiet on the D&O and E&O fronts.”

“Our informal discussions with brokers support the survey findings,” noted Tom Ruggieri, Advisen’s CEO. “Brokers tell us that they may have to work hard, but they are getting tough risks placed with no change in rates or policy conditions. Programs with less subprime exposure are seeing significant rate decreases and broader coverage.”

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