Subprime liability claims could reach US$9 billion

Litigation surrounding subprime exposure will result in D&O liability and E&O insurance claims estimated at between US$3 billion and US$4 billion and possibly as high as US$9 billion, Fitch Ratings reports.
Insurers’ potential losses could be substantially higher if credit issues spread to sectors not directly tied to the subprime mortgage market, or if market conditions lead to increased bankruptcies, it adds.
The majority of these losses would be borne by the largest writers of primary and excess D&O, Fitch reports.
As a whole, this group has reduced its reliance on reinsurance in recent years, so reinsurers will likely experience less of an impact, Fitch says.
To date, insurers are reporting the majority of claims are related to D&O policies from securities fraud class actions. Such actions arise from allegations that false and misleading statements have been circulated, and that key information has not been disclosed, the report says.
Companies are reporting far fewer E&O claims, Fitch says.
“Fitch believes the near-term impact from the subprime issues will have a stabilizing or modestly positive effect on professional liability rates, especially within the financial services sector, but are unlikely to result in broad hardening.”