Following a break for lunch during which keynote speaker Madeleine Albright addressed all of us, the first afternoon session addressed bailouts, bankruptcies and D&O underwriting.  The panel included the following senior industry executives:

  • Marc London, Senior Vice President, Marsh USA (Moderator)
  • David Bradford, Executive Vice President & Editor-In-Chief, Advisen, Ltd.
  • Vincent J. Dowling, Jr., Managing Partner, Dowling & Partners Securities, LLC
  • Stephen R. Guglielmo, Lead Underwriter, HCC Global Financial Products
  • Michael Karmilowicz, Vice President, Hartford Financial Products
  • David Lynders, Vice President, Axis Capital
  • Christine S. Montelbano, Regional Vice President, Travelers Bond & Financial Products
  • Jeremy Perler, Co-Head of CFRA Accounting Research, RiskMetrics Group
  • Salvatore Pollaro, Executive Vice President, Zurich North America, Specialties

The panel generally discussed the economic crisis and included a specific overview of the economy and its impact on the insurance industry. Marc London set the tone of the session by discussing the changes that occurred during the past year, which was highlighted by an informal list of the many financial institutions that have filed for bankruptcy. 
 
Following the opening notes, David Bradford provided a number of different historical statistics and forecasts to illustrate the state of the economic crisis, including a projection that approximately 62,000 commercial U.S. banks will fail in 2009, up from 41,200 in 2008.  Another startling statistic provided is that U.S. companies are poised to default on between $450 and $500 billion of corporate bonds and bank loans over the next two years.
 
The panel continued with a number of discussions including: whether a correlation exists between companies experiencing financial stress and exhibiting “bad behavior”; the relatively good health of the property & casualty industry; and lessons learned from 2008.  Generally, the panelists emphasized the need for underwriters to get back to the basics when writing new risks, which, according to Stephen Guglielmo,  includes looking at industry issues, a company’s balance sheet, footnotes in financials regarding what has been disclosed, and cash flow and income statements.  The panelists emphasized the use of more predictive models in underwriting risks. 
 
Jeremy Perler provided a list of questions to consider in identifying risky situations including: (1) understanding a companies’  assets; (2) figuring out what the company could be hiding; (3) considering the potential exposure of companies with pension plans; and (4) determining how management is judging itself. 
 
The panelists also discussed the potential impact of a client receiving government bailout money.  One advantage to the receipt of funds is that the client is acquiring cheap liquidity.  However,  a government bailout could dilute the shareholders’  strength in the company, which could lead to lawsuits in the future.