INSURANCE INDUSTRY FACES LOSSES OF $1.8 BILLION FOLLOWING MADOFF SCANDAL
While much attention regarding Bernard Madoff’s alleged $50 billion Ponzi scheme is focused on investors who lost millions, another industry will face major repercussions from the scandal. Insurance companies are facing increased pressure on their professional liability lines, and the end is far from in sight.
Law suits against money management firms that utilized Bernard L. Madoff Investments Securities are on the rise and many of the companies will face huge losses from legal fees and possible settlements. Brokerage firms are required to have insurance according to the Securities Investor Protection Corporation (SIPC). Claimants are entitled to up to $500,000, which will undoubtedly put a major strain on the SIPC.
An analysis by global reinsurance intermediary, Aon Benfield, estimates that the total losses from the Madoff scheme are in the range of $6 billion, with the best estimate of direct insured losses close to $1.8 billion. Claims are being directed at financial institutions, investment funds and money managers who had dealings with Madoff and lawsuits may extend beyond that involving parent companies, accounting firms and auditors tied to the investments.
The Fairfield Greenwich Group, a New York-based institutional investor in Madoff funds, faces a $7.5 billion suit by investors. The lawsuit alleges that hedge fund managers made millions in profits from fees and failed to carry out due diligence that would have uncovered the fraud.
SOURCE: INSURANCE JOURNAL