Insurers face sizable loss on D&O cover

A panel of insurers could face a major payout on Banco Santander’s directors’ and officers’ (D&O) liability cover following the Spanish bank’s announcement that it would pay about $235m for Madoff-related claims.

According to sources, Willis placed the D&O cover, while insurers exposed include Liberty International, Zurich, AIG and Brit. HCC International, Munich Re, Ace and Axis are also thought to be exposed, according to reports.

Liberty, Willis, AIG, Zurich and Brit all refused to comment.

Under the agreement two funds from Santander’s alternative investment arm Optimal Investment Services (Optimal) will pay the trustee for the liquidation of Bernard L Madoff Investment Securities LLC (BLMIS) more than $235m, an amount equal to 85% of the trustee’s claims against Optimal. The funds exposed were Optimal Strategic US Equity Limited and Optimal Arbitrage Limited.

“I am very pleased that we reached such a favourable settlement with Optimal and that it will pay more than $235m to resolve claims against it.

“We hope other entities against which we have claims will likewise come forward to settle those claims for the benefit of all of Madoff’s victims,” said Irving H Picard, the Securities Investor Protection Act (SIPA) trustee for the liquidation of BLMIS. The company is undergoing liquidation under the SIPA from 1970 in the US Bankruptcy Court based in New York. Bernard Madoff, BLMIS’s principal pleaded guilty to conducting a Ponzi scheme, reportedly the largest in history.

The agreement with Optimal is subject to the approval of the US Bankruptcy Court and an initial hearing is scheduled for 16 June.