Sub-prime crisis prompts UK claims, as Willis warns insurers may struggle.
The slump in the UK housing market has started to hit insurers’ books, with Royal & SunAlliance confirming that it has received claims relating to mortgage defaults and house repossessions.
The claims come amid tightening controls on mortgage lending as the effects of the US sub-prime crisis continue to be felt. A Lloyd’s spokesman said it has so far received 90 claims relating to sub-prime.
ProFin director Aaron Devitt said that as well as claims surrounding mortgage defaults and repossessions, R&SA had received claims centring on cases of mortgage fraud, whereby surveyors value a property at more than it is worth. If the mortgage on the home is later foreclosed, the bank can sue for the difference.
Devitt said: “We have some of these cases we’re investigating now.”
With professional indemnity and directors’ and officers’ rates at the lowest levels in 10 years, according to a recent survey by broker Willis, some experts have predicted insurers may face challenges when claims begin to arise.
Even if rates begin to harden over the next year, with more exposure anticipated, it is likely that some insurers will have difficultly meeting these sub-prime claims.
The US fell into a sub-prime crisis last summer after higher interest rates and falling property prices contributed to rising mortgage delinquencies. The crisis has led to the bankruptcy of several US mortgage lenders and an increase in regulatory scrutiny.
Analysts predicted the effects would be felt by insurers in the UK and Europe but it was unknown when claims would arise. Earlier this month, AIG, the world’s largest insurer, estimated its losses from the US sub-prime mortgage crisis at $5bn.
This week, the first major sub-prime related lawsuit, against Swiss banking giant UBS by Germany’s NSH Nordbank, was initiated.
Such claims are likely to continue to arise, and to have knock-on effects for insurers.
Meanwhile, fears have emerged that a deal to save bond insurer Ambac could fail. The insurer guarantees the payment of interest and principal on securities it underwrites and is expected to face large claims as debt, backed by sub-prime mortages, defaults.