Chubb could be forced to pay out up to $2 billion on directors and officers (D&O) insurance policies due to a surge in litigation in the wake of the financial crisis, an insurance expert cautioned this week.
Jay Gelb, analyst at Barclays Capital, warned investors that “given a potential for a wave of D&O litigation, Chubb does not appear appropriately reserved.”
“If Chubb’s 2008 U.S. D&O accident year loss ratio of 78% rose to the peak developed loss ratio over the past 10 years of 120% (which occurred in 2002 due to the tech bubble/IPO laddering), we estimate Chubb could report additional D&O losses of $2 billion, pre-tax over several years,” Gelb said in his investors’ report.
Total D&O insurance losses from the fall-out of the financial crisis could hit $10 billion, Gelb warned, with Chubb sharing approximately one fifth of the market.
