David Lewin, Managing Director
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The worldwide economic downturn has had a huge effect on the Dutch economy. Many companies in the Netherlands face the risk of bankruptcy. In 2009 almost 11,000 enterprises were declared bankrupt, an increase of more than 51 percent compared with 2008. A similar number of companies are expected to enter bankruptcy in 2010. An even greater number of companies will be affected as they become entwined with the insolvencies of their contractual counterparties.

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In general, Directors & Officers (D&O) insurers continued to experience some stabilization in pricing and a normalization of exposure in both the Commercial and Financial Institutions segment. For commercial risks with attractive risk profiles, the market remained competitive with average primary rate changes ranging from flat to a decline of 8 percent. After two years of dramatic rate increases, the financial institution segment showed signs of moderation as rate increases slowed.

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Wolfram Schultz, Senior Vice President
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The Act on the Appropriateness of Management Board Compensation (VorstAG) came into force in Germany on 5 August 2009. The Act will impact new D&O insurance contracts and existing contracts after 30 June 2010. The Act is causing uncertainty through the introduction of a compulsory deductible for directors and officers.

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Emil Metropoulos, Senior Vice President
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The global financial crisis that has unleashed havoc on credit and equity markets is the most recent casualty catastrophe (with both systemic and classic clash characteristics), and it may be the largest in recent memory … but it certainly isn’t the first. In fact, there have been many, and their frequency has increased over the past two decades, allowing financial markets little reprieve from one disaster to the next.

The stock market crash of Oct. 19, 1987, kicked off the modern casualty catastrophe age. The Dow Jones Industrial Average lost 22 percent of its value, earning the event the appellation “Black Monday.” Since then, we have endured the initial public offering (IPO) laddering and equity analyst scandals associated with the “dot-com bubble,” as well as accounting irregularities at Enron, Tyco, WorldCom, Adelphia and others. The loss of shareholders’ wealth with each of these events was profound, but none has been as severe as the one that currently has the world’s financial markets in its grasp.

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Emil Metropoulos, Senior Vice President
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Remoteness has been used to downplay the threat, causing carriers to overlook a more immediate, though less menacing, concern. A substantial loss may not imperil company operations, but it could lead to an unexpected earnings hit, the effects of which would be magnified for shareholders. Unanticipated large losses typically result in a disproportionate impact on market capitalization. Casualty clash and catastrophe protection, consequently, can be a vital tool in managing overall financial performance.

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David Lewin, Managing Director
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This latest issue of our legal update continues to expand our coverage of key legislative and judicial developments in Continental Europe. A variety of developments in insurance legislation are charted in this latest issue, from the introduction of mandatory self-insured deductibles in D&O liability insurance in Germany to the introduction of rights of direct access against liability insurers in Switzerland.

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David Lewin, Managing Director
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Formerly, D&O insurance seldom included deductibles borne personally by the members of a company’s Management Board (Vorstand). The Act on the Adequacy of Management Board Compensation (Gesetz zur Angemessenheit der Vorstandsvergütung — “VorstAG”), adopted on June 18, 2009 by the German Parliament, now makes this mandatory.¹

The Legal Situation

VorstAG modifies the legal regime governing the compensation of members of the Management Board of German stock corporations and introduces a mandatory deductible for D&O insurance policies.

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David Lewin, Managing Director
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The global economic situation has resulted in challenging conditions for the D&O liability insurance market. Particularly in the United States, carriers worry that a torrent of claims for damages is coming, which could run into the billions of dollars. Statistical models forecast compensation payments of approximately EUR3 to EUR10 billion.

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David Lewin, Managing Director
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When problems in the subprime mortgage market erupted into a full financial catastrophe last year, conventional wisdom suggested that property and casualty (P&C) insurance companies would suffer. The culprit, many believed, would not be investments in mortgage-backed securities (MBS) like the life insurers. Rather, it would be the possibility of slipped bond ratings because of problems with bond insurers, ultimately lowering the value of the bonds held in P&C investment portfolios. The increase in insured losses as a direct result of subprime and the ensuing credit crunch would certainly drive P&C companies to have poor returns, the thinking continued. Even at the mid-point of 2008, talk of a turn in the market began to percolate.

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Guy Carpenter & Company, LLC today published its annual update on legislative and legal developments affecting insurers and reinsurers in Continental Europe. The report addresses the implications of the ongoing global financial crisis and highlights key trends, laws, and reforms that have been introduced or are expected in the region.

Developed with the insurance practice of law firm Heuking Kühn Lüer Wojtek, the report indicates that both the European Union (EU) and national parliaments continue to revise and institute laws to align insurance law throughout the EU, increase corporate responsibility and protect policyholders. The report details the latest legislative and legal developments in Austria, Belgium, France, Germany, the Netherlands, Norway, Spain, Sweden, and Switzerland.

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