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September 2012 Bermuda Re/insurance


Notes on a scandal


Bermuda Re/insurance The financial crisis has had lasting


implications for banks and their service providers, with events a significant test of professional liability coverage.


Here, the challenges and opportunities of recent years are explored.


of the financial crisis back in 2008, but liabilities continue to surface—the scandal over the London Interbank Offered Rate (Libor) being the latest to emerge. The lasting implications of the crisis remain a very real concern for those writing professional liability coverage for financial institutions, with ongoing scandals in the banking sector likely to spill over into the wider financial service sector. On non-financial books of business, matters are looking rather better with some upward rate movement finally materialising, but investment returns remain depressed, creating a challenging environment for writers of professional liability.


M Professional liability insurers have faced a difficult few years,


with the fallout from the financial crisis, additional capacity and falling rates coalescing to create a challenging set of circumstances. However, as Matthew Irvine, chief underwriting officer at XL Insurance indicated, in all three areas of professional liability— directors and officers (D&O), employment practices liability (EPL) and errors and omissions (E&O) insurance—“the margin compression of recent years is beginning to abate”. He said that this was not being driven by any constraint in capacity—adding that he did not foresee a classic hard market emerging as a result of conditions— rather it is “being driven by underwriters realising that the margin erosion that we have seen over several years has meant that we are just not getting the return on capital relative to the exposures faced”. He indicated that each account is of course considered on an individual basis—“on their current rate adequacy, their loss record and changes in exposure”—but it seems that limited returns on the line are finally prompting an upward correction.


uch water has passed under the bridge since the start


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