Cover for hedge funds and investment curtailed, prices up
US financial broker Frank Crystal & Co says insurers have tightened terms and pulled cover for financial fraud and errors for complex financial products and providers such as Hedge funds, The FT reports.
Mark Freitas, president, said: “Insurance providers have tightened the types of policies they underwrite and have increased premiums. That directly influences what’s readily available and what’s not,” he says.
Most insurers have become more conservative in underwriting such policies, and groups such as American International Group, Chubb, Lloyds of London, Travelers and XL Capital have scaled back or left the market.
Affordable protection against investment fraud largely dried up following the discovery of Bernard Madoff’s $65bn (£39bn) Ponzi scheme in December. Investor claims related to mismanagement and failure to disclose risks by fund managers are rising. Investors have also sued funds of funds, especially those that invested with Madoff. More claims can be expected, as a lag typically occurs between the triggering event and the claim.
“The cost has become prohibitive. Carriers are asking more questions and in many cases reducing the capacity they will provide to any one risk,” says Freitas. “We’re spending a lot of time to establish new ways to make buyers and underwriters find common ground,” he adds.
