An insurance analyst from Bear Stearns has tripled his prior estimate of potential losses to liability insurers stemming from the credit crisis—raising a $3 billion guess he published in September to $8-to-$9 billion.
In a research report published in late January, David Small of Bear Stearns in New York repeated the same methodology he used in his prior report to estimate a “potential worst-case scenario” of directors and officers and professional liability losses for the insurance industry arising from the subprime mortgage crisis.
But with the starting point of his analysis—the number of financial institutions and related companies that lost more than 40 percent of their market capitalization in 2007—soaring to 154 from only 55 in his original analysis, the insurance loss estimate ballooned as well.
Mr. Small’s report also noted the total market capitalization loss for these companies has soared to $446.6 billion from $65 billion tallied at the time of his Sept. 6 report.
Separately, in early February, New York-based Advisen Ltd. estimated that write-downs of subprime exposures by 120 financial institutions exceeded $230 billion, and that D&O losses for these institutions could reach $3.6 billion.
Advisen—a provider of technology and data to the commercial insurance industry that has been tracking financial institution write-downs across the globe—noted that its $230 billion tally had jumped more than 30 percent in just one month, ballooning from a January total of $173.2 billion.
In the January report, Advisen had estimated more write-downs to come, reporting 112 companies that had recorded write-downs to that point had disclosed total subprime-related assets of $440 billion to date, but that some exposure to collateralized debt obligations and other subprime-related investments had not been disclosed.
At that point, Advisen estimated that just those 112 companies might actually have carried as much as $1.2 trillion of subprime-related assets (pre-write-down) on their balance sheets.
The latest Advisen forecast of D&O losses is based on historical securities class-action settlement patterns and D&O program limits and retention data from Advisen’s Program Benchmarking database, the company said.
In the February report, Advisen also reported that 181 subprime-related lawsuits have been filed, up from 138 tallied in its mid-January report.
Bear Stearns’ Mr. Small, in his most recent analysis, split the financial institutions and other companies he identified into micro-, small-, mid- and large-cap companies, and assumed average exposed policy limits for each group ($100 million for the medium-sized companies, for example). This analysis repeated the steps he took to come up with his original $3 billion worst-case estimate last September.