When new financial products and historical underwriting principles clash


When new financial products and historical underwriting principles clash

Many international insurers and reinsurers remain embroiled in litigation that resulted from the financial meltdown, as Michael Barr explained to Intelligent Insurer.

While much of post-financial crisis litigation has centred on a swirl of litigation and regulatory investigations involving the major money centre banks, investment banks, and government-sponsored enterprises such as Fannie Mae, global insurers have suffered their share of actual or threatened losses from the collapse of structured financial products which they insured or in which they invested.

The resulting litigation, in which insurers have been plaintiffs as well as defendants, should compel a re-examination of some historic underwriting precepts and practices. Michael Barr, the US senior partner and a member of the global board of Dentons, has been litigating these cases on behalf of insurers since the collapse of Enron. He says that insurers can draw some key lessons for the future from what have proved to be the most hotly contested issues.

“You can trace many of these matters back to recent periods when multi-line carriers sought to expand their premium volume and margins by competing with mono-line insurers and banks to provide credit enhancement for a wave of new financial products, including collateralised debt obligations (CDOs), mortgage backed securities (MBS), and other securitised or pooled assets,” says Barr.

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