NU Online News Service, Aug. 5, 12:20 P.m. EDT
Hefty claims against financial institutions, sparked by slumping stock prices, has professional indemnity and directors and officers insurance prices soaring for that sector, a report said.
Second-quarter rate hikes for D&O and indemnity coverage for financial institutions are averaging 15 percent, according to Willis Group Holdings' FINEX Global.
The London-based firm's report said premium increase can be "dramatically higher…in cases where underwriters have concerns over exposure or where financial institutions have experienced significant growth."
The report found notable hardening of the financial institutions insurance market for the first half of this year–a trend that is expected to continue for the remainder of 2009. While big increases are being recorded for the financial sector, other sources report that, overall, D&O boosts are in the low single-digit area.
The Willis report represents the opinions of 20 leading insurers of this business in the London market.
For some of these insurers, the claims they have paid in 2007 and 2008 have exceeded the premiums received, necessitating the push for rate increases.
"Due to the magnitude and long-tail nature of the type of claims financial institutions insurers are facing and the continuing climate of economic uncertainty, we expect to see the market hardening further," said Duncan Holmes, managing director of FINEX Professional Risks.
Still, he said, Willis has "not seen a widespread withdrawal of insurers from this sector and there is still a surplus of capacity for certain risks."
The report noted that underwriters are taking three different approaches toward mitigating the effects of the financial turmoil on their business:
o Increasing premium: Underwriters are looking to enforce premium increases across their entire portfolio regardless of risk profile and are prepared to walk away from unprofitable risks.
o Reducing exposure: In a very difficult marketplace it is common for insurers to reduce their overall participation on a program.
o Restricting policy coverage: Underwriters are examining existing wordings in detail with a view to restricting various areas.
Financial institutions are likely to face increased due diligence from underwriters, the report noted. Willis said it is advising clients to begin the renewal process early and to diligently respond to underwriters' queries to secure coverage at the best possible terms.
A copy of the report is available at www.willis.com.
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