Madoff-related insured loss may hit $3.8B: Analysis - Insurance and Audit business impacted by Fraud

Madoff-related insured loss may hit $3.8B: Analysis
Posted On: Jan. 15, 2009 8:58 AM CST
Richard Miller
Aon Benfield estimates the direct insured losses resulting from Bernard Madoff’s alleged Ponzi scheme to be between $760 million and $3.8 billion, with a best estimate of $1.8 billion, according to a preliminary analysis released Thursday by the reinsurance brokerage.

The maximum potential exposed insurance limits are estimated to be more than $6 billion, Aon Benfield said.

“These figures represent material costs, but are not likely to have a significant impact on the insurance industry,” said Stephen Mildenhall, head of Aon Benfield’s actuarial and enterprise risk management practice.

The high end of the likely range of insured losses represents less than 20 loss ratio points on global directors and officers, errors and omissions, and fidelity premium. Based on estimated financial institution insurance premiums, the loss ratio impact could range from 40 to 180 loss ratio points in this specific segment, Aon Benfield said in a summary.

“When the effect of this scandal is combined with the impact of the ongoing credit crisis, many insurers will see profitability deteriorate even further in their financial institutions book of business,” Mr. Mildenhall said. “Optimists may point to a potentially positive outcome—a more rapid hardening of rates in the professional liability market.”

Authorities say Mr. Madoff confessed last month to stealing $50 billion in a global Ponzi scheme, in which investors were paid with money raised from new clients.