YesterdayÃ¢â‚¬â„¢s sentencing of Bernard Madoff to the maximum 150 years in prison in connection with a massive investor fraud has everybody talking. The Wall Street Journal Law Blog notes that while the 150-year sentence was the statutory maximum for the 11 counts Madoff pleaded guilty to in March, it is not the longest handed down in a white collar crime case. Meanwhile, the Associated Press quotes a source that authorities are likely to charge 10 others in connection with the multi-billion dollar fraud. The New York Times DealBook blog today outlines yet another Madoff-related lawsuit this one filed against a Texas hedge fund by New MexicoÃ¢â‚¬â„¢s teacherÃ¢â‚¬â„¢s union. Over at the D&O Diary Kevin LaCroix recently commented that as diverse and dispersed as the consequences of the Madoff scandal have been, so too is the wave of litigation to follow in the wake of the schemeÃ¢â‚¬â„¢s collapse. So it would seem. Check out the D&O DiaryÃ¢â‚¬â„¢s running list of Madoff-related lawsuits.
ItÃ¢â‚¬â„¢s a rather sad but inevitable part of working in the insurance business that any headline news, whether a hurricane, or train crash, or a celebrity death immediately gets you thinking about the insurance coverage involved and the potential claims that will arise. And so it is with the death yesterday of pop legend Michael Jackson. From providing appearance/event cancellation coverage, to insuring celebrity body parts, to providing death and disgrace policies, specialist insurers play a major role in providing protection to the stars and the companies that promote and sponsor them. For example, over the years Lloyd’s has insured a long line of celebrities, including Rolling Stones guitarist Keith Richards’ fingers and Marlene Dietrich’s legs, and in 2007 Lloyd’s insured the smile of America Ferrera, star of the hit television show Ugly Betty, for $10 million. Whether a musician, a sports star, or a top chef, each celebrity risk profile is different and will vary according to the individualÃ¢â‚¬â„¢s occupation, health, lifestyle and associated risks. An online article today at Reinsurance magazine concerns the question of insurance coverage for event cancellation given that Michael Jackson was on the cusp of a 50 concert tour.
Is Gulf of Mexico windstorm risk still an insoluble risk management problem? This is the question posed in the latest annual Energy Market Review from Willis. The report notes that fallout from a major Gulf of Mexico windstorm is once again casting a shadow over the energy insurance market in the wake of Hurricane Ike. A full consensus has yet to emerge as to the best way to offer the product, and in the meantime the market for Gulf of Mexico windstorm risk is more confused, volatile and expensive than ever before. Meanwhile, the energy industry is faced with a changing world, Willis says. The financial market meltdown and global economic recession have led to rapidly cooling commodity prices and left the energy industry now facing a very different challenge of maintaining profitability in the face of plummeting demand. As a result energy insurers must find new ways of making up for income shortfalls and sharp decreases in investment incomes in 2008. An increased focus on underwriting profitability is the inevitable result. However, any drive towards a harder market is being tempered by the fact that with little or no withdrawals from the market in January 2009, capacity levels for energy risks have actually increased by about 5 percent from last year, according to Willis. A big question mark therefore hangs over 2009: will competitive pressures take their toll on market discipline as the year progresses? Check out I.I.I. facts & stats on the 2007 and 2008 AtlanticÃ‚ hurricane seasons.
DirectorsÃ¢â‚¬â„¢ and OfficersÃ¢â‚¬â„¢ (D&O) liability insurance costs for financial institutions increased 50 percent in the fourth quarter of 2008 compared to that of 2007, according to the Quarterly D&O Pricing Index from Aon CorpÃ¢â‚¬â„¢s Financial Services Group. This is the first time year-over-year price increases were found in over five years. Aon said a number of unprecedented events contributed to the significant price increases, including: reports of more than 1 million job losses in Q4 2008; Bernard Madoff’s alleged Ponzi scheme; a substantial decline in major stock indices; and federal securities class action lawsuits activity in 2008. AonÃ¢â‚¬â„¢s D&O Index also shows that the average price for $1 million in coverage limits increased 3.15 percent from Q4 2008, compared to Q4 2007. This is the first time since 2003 that price increases in the financial sector have been significant enough to move the entire index. So will there be more? Ã¢â‚¬Å“In the short term, we expect to see D&O pricing for the financial sector continue to rise,Ã¢â‚¬ said Mike Rice, managing director of AonÃ¢â‚¬â„¢s Financial Services Group and author of the Index in a press release. Ã¢â‚¬Å“It is possible, however, that a tough underwriting environment could emerge for all public companies as the economy continues to negatively impact both financial results and stock prices.Ã¢â‚¬ Ã‚
ItÃ¢â‚¬â„¢s time to make your Oscar picks and as you select a Best Picture among this yearÃ¢â‚¬â„¢s crop of nominated films another question you might want to consider is what is the riskiest movie of 2008? According to FiremanÃ¢â‚¬â„¢s Fund Insurance Co, honors in this category go to Ã¢â‚¬Å“The WrestlerÃ¢â‚¬ a drama about Randy Ã¢â‚¬Å“The RamÃ¢â‚¬ Robinson, a once popular pro wrestling star, now aging and down on his luck. As an insurance risk, the film wins Ã¢â‚¬Å“most risky productionÃ¢â‚¬ primarily because lead actor Mickey Rourke did much of his own stunt work in the film. The physicality and quantity of the stunts Ã¢â‚¬“ in one scene Rourke has a brutal wrestling match accompanied by glass shards, staples and barbed wire Ã¢â‚¬“ made the film a major risk. Luckily adequate precautions were in place to mitigate the risk, including insurance. Among insurance coverages for films, cast insurance covers a range of possible scenarios that could happen to an actor where production would be affected, such as illness, injury or even death. Of the total of 79 Oscar nominees this year FiremanÃ¢â‚¬â„¢s Fund insured 46. Insured nominees include Ã¢â‚¬Å“Milk,Ã¢â‚¬ Ã¢â‚¬Å“Frost/Nixon,Ã¢â‚¬ Ã¢â‚¬Å“The Reader,Ã¢â‚¬ Ã¢â‚¬Å“The Dark Knight,Ã¢â‚¬ Ã¢â‚¬Å“Changeling,Ã¢â‚¬ Ã¢â‚¬Å“Iron Man,Ã¢â‚¬ Ã¢â‚¬Å“Defiance,Ã¢â‚¬ Ã¢â‚¬Å“In Bruges,Ã¢â‚¬ Ã¢â‚¬Å“The Visitor,Ã¢â‚¬ Ã¢â‚¬Å“Frozen River,Ã¢â‚¬ Ã¢â‚¬Å“Wanted,Ã¢â‚¬ and Ã¢â‚¬Å“Hellboy IIÃ¢â‚¬ as well as Ã¢â‚¬Å“The Wrestler.Ã¢â‚¬
And on a completely different topic hereÃ¢â‚¬â„¢s a note for your calendar: FiremanÃ¢â‚¬â„¢s Fund and the I.I.I. invite you to participate in a webinar next Wednesday February 25 at 1pm ET/10am PT that will provide an overview of the impact of the economic stimulus plan on the property/casualty insurance industry. To register for the webinar, please contact: Susan Murdy, FiremanÃ¢â‚¬â„¢s Fund (firstname.lastname@example.org) or Loretta Worters, I.I.I. (email@example.com).Ã‚
Another day, another fraud. The Securities and Exchange Commission (SEC) has charged Robert Allen Stanford and three of his companies for orchestrating an alleged fraudulent, multi-billion dollar investment scheme centering on an $8 billion certificate of deposit (CD) program. ThisÃ‚ is the second massive alleged fraud to hit the headlines in a matter of months. It follows the recent charging of Wall Street financier Bernard Madoff in connection with a $50 billion investor fraud. That schemeÃ¢â‚¬â„¢s collapse has fueled litigation on a number of fronts. Hat tip to the D&O diaryÃ‚ for details of the first securities class action lawsuit filed by investors in connection with the Stanford fraud allegations. Also check out I.I.I. information on the liability system.Ã‚
On the road here at the annual Professional Liability Underwriting Society (PLUS) International conference in San Francisco, this morningÃ¢â‚¬â„¢s sessions include a very topical one on the credit crisis and its impact on financial institutions (FIs) and their directors and officers (D&O) insurers. Ahead of the discussion Advisen today estimated the insured loss from the subprime meltdown and the ensuing global credit crisis will add 229 points to the 2008 loss ratio for the FI segment of the D&O market and approximately 149 points to the aggregate 2007-2009 financial institution errors and omissions (E&O) loss ratio. In dollar terms, this translates to an overallÃ‚ insured liability loss of $9.6 billion ($3.7 billion in E&O and $5.9 billion in D&O insured losses). According to Advisen the upshot is that commercial lines rates, including D&O and E&O, are likely to increase in 2009.Ã‚
Towers Perrin is calling for data submissions for its 2008 Directors and Officers (D&O) Liability Survey. The survey is best completed by the person responsible for buying an organizationÃ¢â‚¬â„¢s D&O coverage. To participate, request a secure link from firstname.lastname@example.org, then visit Towers PerrinÃ¢â‚¬â„¢s Web site, www.towersperrin.com, to complete the electronic questionnaire. Deadline for participation is Friday, August 29. Check out our June 18 posting to review key findings of Towers Perrin’s 2007 D&O Liability Survey.
Today another example of the innovative and unusual side of our industry comes from across the pond at LloydÃ¢â‚¬â„¢s. Word has it that a Dutch wine maker has insured his nose for Ã¢”š ¬5 million ($7.8 million) to cover against any incident that could threaten his livelihood. The individual, owner of Chateau de La Garde in Bordeaux and producer of Tulipe Wines, recognized that his nose is the most important asset in his profession which relies on a good sense of smell to guarantee the constant quality of wines. The policy is co-insured by Watkins Syndicate and Allianz Nederland. LloydÃ¢â‚¬â„¢s notes that nose insurance is not just restricted to wine buffs. For example, Watkins Syndicate is currently working on a policy with a U.S. perfume consultant who develops new fragrances for perfume houses. As the lead underwriter himself commented, these insurance policies are not to be sniffed at…Ã‚