Terrorism, DO Liability, AIG Speculations Dominate Bermuda Conference

February 21, 2002

Delegates to Bermuda’s bi-annual insurance conference, which opened yesterday, had a full plate of information to digest. The first international meeting since the Sept. 11 attacks focused not only on the overall threat of terrorist coverage, but also weighed the implications of the Enron, Global Crossing and K-mart bankruptcies on D&O Claims, the effect of a lot of new capital in the market, and the absence of AIG CEO Maurice “Hank” Greenberg.

Greenberg, 76, had been scheduled to deliver the keynote address at the conference, but pulled out last week, sending AIG Sr. VP Thomas Tizzio in his place (See IJ Website Feb. 18). His withdrawal, vaguely explained as a case of the flu, caused a minor hurricane of speculation to form on his possible successor at AIG with articles appearing in Forbes, Reuters and the Financial Times all producing articles, none of them very enlightening, on who might take over. greenberg has said that he has a succession plan, but hasn’t reveled what it is, and the history of his dauphins, his two sons, both of whom left the company, suggests that replacing Hank Greenberg, arguably the most powerful person in the industry, will not be an easy task.

Tizzio’s remarks concentrated on the expected upsurge in D&O claims following three high profile bankruptcies, especially the tangled collapse of Enron where over 50 lawsuits against its officers and directors have already been filed. Tizzio noted that had been 487 class action securities fraud cases filed last year, compared to 216 in 2000.

According to the Financial Times, “The Insurance Information Institute believes that D&O will be the largest liability problem for the industry this year, even as it battles uncertainty over claims from future terrorist attacks. It is estimated that $3bn in D&O premiums was taken in the last year but that insurers may have to pay out more than $5bn.”

Tizzio indicated that the new problems in the D&O area, coming on top of the dot com meltdown, required the industry to completely reexamine d&O coverage in light of the new threat to the credibility of auditors’ reports, and the exponential filing of class action lawsuits. He acknowledged that the insurance industry has underestimated the potentially catastrophic losses which could be incurred by the industry, and said it would be the major problem they face in 2002.

The conference also issued a call for government plans to cover terrorist related risks, and discussed the current implications the events of Sept. 11 have had on premium rates. The industry, especially reinsurers, had anticipated sharp increases for commercial enterprises, but the addition of over $10 billion in new capital, most of it in Bermuda, has served as a damper on rate rises, bringing the market back down to earth, and fueling speculation about the solvency of weaker companies.

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