Financial institutions left with little choice as world’s largest reinsurer withdraws from market

Munich Re has scaled back its directors’ and officers’ (D&O) insurance for banks, following a string of credit crunch-related claims.

The exit of the world’s largest reinsurer from the market is expected to send primary insurance rates spiralling in the new year.

Swiss Re is understood to have taken a similar line, leaving insurers with scant choice of reinsurers in the market for risks related to financial institutions. The lower end of the market – such as manufacturing companies – are not expected to suffer to the same degree.

But some insurers view the market as an ideal business opportunity and are piling in, in anticipation of hardening rates.

A number of primary insurers seem keen to enter the market. Starr Managing Agents chief executive Steve Blakey said a move to start underwriting FI in UK and Europe was “imminent”, adding: “We think there is an underwriting opportunity there.”

Dual Underwriting executive chairman Russell Kilpatrick, said: “It is only a matter of time before we see claims payment come through and the market become harder.”

The Lloyd’s market is expecting a series of claims next year relating to the Madoff Ponzi scheme, AIG’s demise, the Bear Stearns collapse, the deterioration of hedge fund investments and possibly also Northern Rock.

Novae Group chief underwriting officer Peter Matson said that UK and North America D&O rates had risen between 20 and 25% in the past year, but agreed that they had not gone up by as much as underwriters had anticipated.

There was speculation that Lloyd’s was attempting to control the amount of capacity for D&O in next year’s business plans to maintain underwriting discipline. A Lloyd’s spokesman said: “Business plans are an evolving process and we work closely with syndicates on them. It is not unusual for a business plan to be rejected in the first instance, with comments on the areas of concern. We then work with the syndicate on these areas for their next submission.”