Guy Carpenter Sub-Prime Briefing - 20.10.07

A reassuring report has been produced by Guy Carpenter on the insured exposure of the insurance industry to sub-prime. A full copy is available here

"There was never any doubt that the sub-prime mortgage market collapse would have an insurance impact. The question was one of extent. While estimates vary from $1 billion to $3 billion, it looks like the reality may settle at the upper end of the scale. The final answer will not come until 2008 or maybe even 2009, but history, litigation tendencies and capital markets point toward the worst case scenario. The crisis could have been worse for insurers. Fortunately, the sub-prime market collapsed when there were fewer securities class action suits than usual.

Insured losses could account for 30% to 35% of D&O industry premium which is unlikely to reduce available reinsurance capacity or substantially impair (re)insurers' results or balance sheets. A hardening of reinsurance pricing in 2008 seems unlikely, except for insurers who are overweight in the affected sectors (e.g. homebuilders, sub-prime lenders). Claim activity has occurred across all industries with most resulting from allegations of issuing materially false and misleading statements (based on securities class actions filed through mid-October). Most of the credit crunch's impact will affect the D&O product line, although E&O suits, ERISA actions and other suits have been filed and could lead to further substantial insurance losses".