Willis: Insurers Generally Avoid Credit Crisis

The general insurance industry has experienced limited impact from the credit crisis because of its limited exposure to subprime investments, and few carriers have received negative rating actions, a report from Willis brokerage said.

"The general insurance sector as a whole appears to have remained relatively isolated from the direct impact of the credit crisis so far," Sally Bramall, managing director of Global Carrier Management at Willis Group Holdings, said in a statement.

"Whilst there have been some notable exceptions, these have been companies that have stretched the boundaries of traditional insurance, assuming more of a 'financial superstore' structure," said Ms. Bramall.

Unlike banks, insurers did not play a key role in each link in the chain of transactions that originated mortgage loans and subsequently bought, warehoused and distributed the derivatives to investors throughout the financial sector, Willis said.

The report also highlights that the investment portfolios of general insurance companies typically contained smaller proportions of subprime-exposed collateralized debt obligations and less mortgage-backed securitizations compared to banks.

Most of the direct impact on general insurers underwriting portfolio has been mainly to errors and omissions and directors and officers lines where liability claims can be made.

The estimated market loss from D&O and E&O litigation could range from $6 billion to $20 billion. Claims related to subprime litigation are expected to evolve slowly and insurers have so far been able to absorb losses, said Willis.

While there were some notable exceptions that stretched the boundary of traditional insurance, the general insurers have so far remained isolated from the direct impact of the credit crisis, the report said.

There will "inevitably be some wider impact on the investment portfolios and investment returns of general insurance companies." This will become more evident in coming reporting seasons, Willis predicted.

Anticipated moderation of the current soft market appears to justify stable ratings outlook, the report concluded. However, those ratings will be subjected to review as the financial turbulence continues in the coming months.