Insurers' D&O Losses Expected to Jump to $5.9B

U.S. insurers will suffer $5.9 billion in losses to protect companies from lawsuits related to the subprime-mortgage crisis, according to industry analytics firm Advisen Ltd., which estimated the loss at $3.6 billion in February.

The 64% rise in the forecast "reflects an increase in securities class-action suits, securities-fraud suits brought by regulators and law-enforcement agencies, losses under Side A policies from bankruptcies, and shareholder derivative suits," said the report, titled "The Subprime Mortgage Meltdown, the Global Credit Crisis and the D&O Market." D&O, or directors and officers liability insurance, is purchased by a corporation to protect it against losses from suits filed due to negligence of its executives.

Almost every party involved in the loan-origination and securitization process is a target for lawsuits, according to the report. The earliest suits were filed against builders, brokers and lenders, with 124 securities class-action suits having been filed against mortgage lenders. More recent suits have focused on firms involved in securitization, including rating agencies, banks, insurance companies and pension funds. In particular, there are 20 securities class-action suits and 10 securities-fraud suits involving firms that structured or sold auction-rate securities.

Still, the number of securities class-action suits has fallen short of the expected avalanche of litigation. According to the report, the number of suits filed in 2007 was less than the annual average of 234. The total in 2008 also is expected to be fewer than that.

The top 10 insurers of D&O for financial institutions account for 78% of the total market, while the top three write nearly half of the total premium volume. The top three writers are AIG(AIG Quote), Lloyd's and XL Capital. Chubb(CB Quote) and Travelers(TRV Quote) round out the top five.

TheStreet.com Ratings issues financial strength ratings on each of the nation's 8,600 banks and savings and loans that are available at no charge on the Banks & Thrifts Screener. In addition, the Financial Strength Ratings for 4,000 life, health, annuity and property/casualty insurers are available on the Insurers & HMOs Screener.