Even as our list of Top 10 Stories was being typed in early December, American International Group was in the news again, as it has been every day since Sept. 15.
"Kelley Leaves Lexington For Ironshore," read the Dec. 9 NU Online News Service headline, announcing that the head of one of the nation's top surplus lines carriers had jumped ship to join a multiline specialty company that was launched in Bermuda as a commercial property insurer in late 2007.
Departures of key executives and underwriting teams, however, were not the only prospects that worried policyholders and brokers when the extent of problems at Lexington's parent, AIG, came to light in mid-September.
Will they be able to uphold their responsibly to pay claims? If they can't, what safety nets are available, policyholders asked, referring not just to AIG, but to XL and The Hartford as well, as financial issues came to light.
Brokers quickly responded with conference call briefings and special Web posts of breaking news–even with insurance products crafted to respond when troubled carriers could not–and we reported on their activities in both our September and November editions.
Our September lead story described a solution known as a "supercontinuity option" crafted by California wholesaler Executive Perils three months earlier for Southwest Airlines. The option allowed Southwest to renew its multicarrier D&O program, with AIG continuing as the primary carrier, while paying an added fee of just 1 or 2 percent of the total premium to get a proposal from an alternative lead carrier.
The optional program could be triggered in the event of an A.M. Best downgrade of the financial strength rating of any AIG insurance subsidiary to "A-minus" or lower. Pricing and terms for that alternative were locked in for 12 months from the July renewal date.
In November, we revealed the details of Aon Flex D&O–essentially a product providing $25 million, $50 million, or higher limits of excess capacity that sits on top of an existing D&O program, which can also drop down to take over the coverage obligations of an insolvent or financially impaired slow-paying underlying carrier. While the product was initially created for D&O insurance, Aon is also obtaining proposals for professional, fiduciary and employment practices liability, as well as crime insurance, the brokers said.
Not far behind, carriers have also been quick to deliver alternatives. On Oct. 22, Bermuda-based Argo Group International Holdings Ltd. said it launched a similar product known as "Sentinel" to the London market through a new unit known as Argo Financial Products, which targets non-U.S.-domiciled insureds with limits up to $20 million, we reported in our November feature.
With separate announcements coming right on the heels of A.M. Best's September downgrade of AIG's p-c subsidiaries to "A" from "A-plus," ACE USA announced it would increase capacity in management, professional and other liability lines to $50 million, and Navigators followed suit, offering $25 million in D&O limits.
American International Group hasn't been the only casualty of the subprime/credit crisis.
"While investors pray for a bottom to a plunging stock market in the days or weeks ahead, experts say an end to litigation arising from issues fueling market turmoil could be years or even decades away. In the meantime, as the financial crisis widens and deepens, more potential defendants are being identified for directors and officers as well as errors and omissions claims," we reported in our November newsletter.
In total, one expert has counted more than 600 lawsuits in the federal court system alone, with several agreeing that there are more than 400 cases that can be characterized as borrower or securities cases. Focusing on just securities class-actions potentially impacting D&O insurers, there were already 127 by the end of October, they said.
Our November articles detailed cases with unexpected defendants, new classes of plaintiffs, and novel theories of liability, explaining why the task of simply counting cases has become so complex.
Even more difficult than tracking the number has been the task of estimating the potential dollar exposure to D&O and E&O insurers, with early D&O estimates reported in our February newsletter ranging from $3 billion to $9 billion, and the latest estimates from New York-based Advisen–detailed in our November lead story–coming in at $5.9 billion for D&O and $3.6 billion for E&O.
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