The direct insured losses resulting from financier Bernard Madoff's alleged Ponzi scheme are predicted to be between $760 million and $3.8 billion, with the best estimate of $1.8 billion. The maximum potential exposed insurance limits are estimated to be more than $6 billion, according to estimates by Aon Benfield.
The high end of the likely range of insured losses represents less than 20 loss ratio points on global D&O, E&O and fidelity premium.
Investment advisors sued for parking customer money with Madoff will turn to liability insurers for help, exposing these insurers to their second big claims hit in a year following the subprime investments meltdown.
Rates for Jan. 1 policy renewals on D&O and E&O insurance rose 10 to 30 percent, according to research by Fox-Pitt Kelton analyst Daniel Farrell. Insurers AIG, Chubb, Travelers Cos., ACE and XL Capital all have large D&O lines of business.
Authorities say Madoff confessed last month to stealing $50 billion in a global Ponzi scheme, in which investors were paid with money raised from new clients. Because insurer-set policy limits generally maximize at $15 million to $20 million per policy, total insurer exposure to Madoff will be less that what he allegedly said he stole.
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