In a recent analysis, reinsurance broker Aon Benfield put a best estimate of direct insurance losses from the alleged Ponzi scheme orchestrated by Bernard Madoff at $1.8 billion, citing a range of $760 million and $3.8 billion around that estimate.
Translating the dollar figures into underwriting profit ratios, Aon Benfield said the $3.8 billion high end of the likely range of insured losses represents less than 20 loss ratio points on premiums collected for impacted liability lines–global directors and officers liability, errors and omissions coverage (professional liability), and fidelity.
Since most insurance claims will be concentrated in the financial institution sector, the loss ratio within this specific segment may be significant, Aon Benfield said. The firm noted that based on estimated financial institution insurance premiums, the loss ratio impact could range from 40-to-180 loss ratio points in this specific segment.
“When the effect of this scandal is combined with the impact of the ongoing credit crisis, many insurers will see profitability deteriorate even further in their financial institutions book of business,” said Stephen Mildenhall, head of Aon Benfield's Actuarial and Enterprise Risk Management practice.
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