-Caveat Lector- >From FT.COM (URL @ bottom)
}}}>Begin Leading insurer warns of threat from Enron fall-out By Adrian Michaels in Hamilton, Bermuda Published: February 20 2002 20:52 | Last Updated: February 20 2002 22:10 A senior executive from AIG, the world's largest insurer, on Wednesday warned that the insurance industry was facing a disastrous run of claims over policies covering shareholder lawsuit liabilities in the wake of the Enron scandal. Thomas Tizzio, senior vice-chairman at AIG, said the financial fall-out from the energy trader's collapse and other high-profile failures such as the recent bankruptcy filing of retailer K-Mart, were a "wake-up" call for the insurance industry. Insurers write "directors and officers" policies for companies that are triggered when shareholders file lawsuits after financial shocks. As well as covering awards, insurers usually have to pay legal fees. These account for the lion's share of their liabilities, even if the companies eventually defeat the suits. Mr Tizzio, commenting on the severe market jitters over corporate accounting in recent weeks, said insurers needed to understand the companies they covered and the risks to which they were committing themselves. More than 50 lawsuits have been filed against Enron's directors and executives, seeking compensation and alleging that shareholders were not given an accurate financial picture of the company. Mr Tizzio implied that insurers had not charged enough for D&O premiums in general. "The focus in 2002 will be on D&O in corporate America," he said. "This year could ultimately see a catastrophic loss in that sector." The Insurance Information Institute believes that D&O policies will be the largest liability problem for the industry this year, even as it battles against uncertainty over claims from any future terrorist attacks. It is estimated that $3bn in D&O premiums was taken in last year but that insurers may have to pay out more than $5bn. Mr Tizzio said there had been 487 class-action claims for securities fraud in federal courts last year. In 2000 there were 216. The number of suits started to grow with the bursting of the dotcom bubble, and there is no end in sight, according to Bob Hartwig of the insurance institute. "The premium rates that were charged did not anticipate the tremendous surge in suits," he said. "[After Enron] the entire investment community has had the revelation that audited reports may not be worth the paper they're written on." Mr Tizzio was delivering the keynote address at the World Insurance Forum in Bermuda yesterday. He replaced Maurice "Hank" Greenberg, AIG's chairman, who had flu. Separately, insurance leaders renewed their call on Washington to pass legislation that would help ensure cover for any future terrorist acts. 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