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. ...