Clyde & Co New York partner Ned Kirk comments on Financial Institutions risks to 'Insurance Day' magazine
At a Clyde & Co seminar, held at 8 December the Old Library at Lloyd’s, an audience of underwriters and claims professionals in the Financial Institutions (FI) market were asked about the issues that concern them for the coming year. Respondents were asked which recent pieces of legislation or court decisions they thought would have the most impact on the US and UK markets.
In the former, the threat of litigation by the Federal Deposit Insurance Corporation (FDIC) against directors and officers of failed banks topped the poll, while in the UK the recent Bribery Act was of most concern.
Edward (Ned) Kirk, an insurance partner in Clyde’s New York office and a speaker at the seminar said to Insurance Day magazine: “While the Dodd-Frank Act has been very much in the spotlight, its size and complexity means that it may be some time before its impact on FI risks is clear," he also noted that "11 different agencies will take a year or more to complete more than 240 rulemaking efforts and draft the 67 different studies required by the Act, and it will be a number of years before the U.S. courts have the opportunity to interpret and apply the new rules."
Meanwhile, the subprime crisis and credit crunch will continue to generate lawsuits and regulatory investigations against financial institutions. Mr. Kirk added that "the recently reported robosigner and other mortgage foreclosure problems and the 314 U.S. banks closed by the FDIC since January 2008 will likely create new claims by regulators and investors against FIs and their directors and officers.
“Corrupt practices are broadly an issue, with the Foreign Corrupt Practices Act in the US and the Bribery Act in the UK. The impact of the latter is expected to be considerable, and the only defence for a commercial organisation will be to show that it had "adequate procedures" in place to prevent bribery by its associates. The breadth of the Act is a daunting proposition for large, multi-national businesses.”
In terms of claims being made in the next few years, 36% of respondents felt these would come from actions by shareholders, while 40% said that a major cause of claims in the sector would come from an increase in regulatory investigations – both domestic and foreign. Ned Kirk added: “Given the scale and severity of the fallout from the global financial crisis, and the ongoing high levels of uncertainty around sovereign debt in Europe, it is probably not surprising that the underwriting community feels this way.”
Opinion was more evenly split over capacity in the FI sector in 2011. 52% felt that it would stay the same, while 39% felt it would increase. Mr Kirk continued: “It is perhaps easy to see why opinions are divided. In the US there have been a number of withdrawals as it has become harder to write this class of business profitably." Those who responded that capacity would stay on constant are possibly responding to the fact that, while in a few individual cases the claims experience has been quite severe, across the entire book of business underwriters are finding that the picture is more benign.”
China topped the poll as the developing market that respondents were most interested in, over the next three to five years, with 40% of the vote. As the sixth largest insurance market in the world, with $133.5 billion in premium for the first half of 2010, there is no doubt that underwriters are keen to capitalise on the huge growth opportunities available here.
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