U.S. property and casualty insurers will pay out $5.9 billion in claims to companies hit by lawsuits related to the subprime-mortgage crisis, according to a recent study by data analytics firm Advisen Ltd.
Insurers that offer directors and officers liability coverage — protection against losses from lawsuits against their executives — will suffer the most pain.
Major players in that market include Travelers and XL Insurance, both of which have major operations in Greater Hartford. They are among the top 10 writers of directors and officers coverage for financial institutions, with market shares of 6 percent and 11 percent, respectively, the study said.
Other major players in the market include American International Group (19 percent), Lloyds (17 percent) and Chubb (10 percent).
Hundreds of lawsuits have been filed against mortgage lenders, investment banks, hedge fund managers, bond insurers, rating agencies, homebuilders and other financial services companies involved in loan origination and securitization in the wake of the sub prime meltdown and credit crisis, the study said.
Advisen, which is based in New York City, said $5.5 billion of the $5.9 billion is the insured portion of an estimated $27 billion in settlements and defense costs in class action cases.
Legal actions taken include securities class action suits, securities fraud suits brought by regulators and law enforcement agencies, and shareholder derivative suits.
Nearly 124 subprime-related securities class action lawsuits have been filed so far, the study said.
Twenty of those suits have been filed against mortgage lenders and their directors and officers. Among the most common allegations are that lenders lacked mandatory internal controls, and, as a result, projections and reported results were based upon defective assumptions or manipulated facts. Some suits also claimed that financial statements were misstated due to failure to properly write down impaired assets.
Most of the $5.9 billion in claims will be paid out in 2008, but some will likely spill over into 2009, the study said.
In February, Advisen forecast $3.6 billion in insured losses related to lawsuits against officers and directors, but that total nearly doubled when the credit crisis mushroomed into a global financial calamity earlier this year.
Surprisingly, while securities class action suits continue to mount, the total number of such suits filed in 2008 will likely be less than the 1997-2006 annual average of 234 suits.
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Milberg Probes The Hartford
The New York City law firm Milberg LLP said it is investigating The Hartford Financial Services Group Inc. and certain fiduciaries of The Hartford Investment and Savings Plan for possible violations, including whether it continued to offer The Hartford’s common stock as an investment plan option when it was imprudent to do so.
Milberg said it was seeking to determine whether the stock was an imprudent investment, given the company’s exposure to the credit markets with mortgage-related assets, exposure to investments in Fannie Mae, Freddie Mac, Lehman Brothers and American International Group, and the deterioration of its capital position.
The law firm said those with individual accounts in the investment and savings plan may have legal claims under the Employee Retirement Income Security Act of 1974, or ERISA.
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People’s Joins S&P 500
Bridgeport-based People’s United Financial Inc. will replace Pennsylvania-based Unisys Corp., a technology services provider, on the Standard and Poor’s 500 stock index.
Unisys Corp. was removed from the index at the end of trading Nov. 10 with a market capitalization of about $313 million, ranking it 500th in the index.
People’s United, a diversified financial services company, was added to the S&P 500 with a market capitalization of $5.74 billion on Nov. 7.
Prior to the move Peoples’ United traded on the NasdaqGS index.
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Greg Bordonaro is a Hartford Business Journal staff writer.
