NU Online News Service, Jan. 31, 1:53 p.m. EST
Moody's Investor Service said recent reports that show a record high in securities lawsuits are credit negative for writers of directors and officers liability.
The rating agency's weekly outlook stated that the insurance industry will bear increased costs since a “vast majority” of corporations being sued in securities-related lawsuits carry D&O insurance.
“Given the relatively long average period for claim litigation, adjudication and settlement, the increased litigation costs are likely to affect profitability for D&O writers in the coming three to five years,” Moody's reported.
Moody's said defense costs are normally part of the policy whether litigants are successful in a settlement or a verdict awarding damages; therefore D&O insurers “can incur significant claim costs.”
The outlook cites insurance researcher Advisen, who said securities-related lawsuits filed hit a record 1,196 in 2010 and the average settlement increased to $37 million from $29 million in 2009.
A plaintiffs' attorney taking part in a webinar sponsored by Advisen said D&O insurers in 2011 should prepare to see more securities lawsuits relating to the subprime mortgage crisis. A suit filed by Allstate Corp. against Countrywide Financial Corp. is a good example.
Moody's said it expects less lawsuits filed in connection with the credit crisis, though the rating agency predicted an increase in mergers and acquisitions-related lawsuits. This trend was pointed out in a recent report by Stanford Law School and Cornerstone Research.
D&O carriers do not appear to have seen an increase in claim losses due to smaller community and regional bank failures, said Moody's.
In reporting fourth quarter profit recently, Chubb Corp. said it had not yet seen sizable claims activity in the community bank arena thus far.
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