Analysts have warned that claims relating to the US sub-prime crisis could cost UK insurers $500m.
The warning came as Novae confirmed it had received notifications of potential sub-prime related claims.
Novae received notice from policy-holders that two claims could be made under professional liability policies, as litigation begins in the US in the wake of the crisis.
Ace is thought to be another insurer that could face claims in relation to an action brought by shareholders against US sub-prime lender Countrywide Financial. The action alleges false and misleading statements regarding the changing quality of the company’s mortgage loan portfolio.
One senior insurance analyst estimated that the sub-prime claims from the US could total $5bn with 10% of that hitting the London market – as much as $500m.
It is understood that nine sub-prime lawsuits have been tabled in the US to date, including the Countrywide Financial case.
London insurers are threatened by a barrage of claims as many of the companies have their directors’ and officers’ (D&O) or errors and omissions (E&O) policies underwritten in London.
Novae chief executive Matthew Fosh said: “Our experience of US liability in the past has prompted us to sharply reduce our exposure to US liability since 2004, particularly from Wall Street investment banks.
“But it is reasonable to assume that US liability will be the epicentre for this sub-prime problem.”
Marsh warned last month that the insurance market might be subject to increased claims following the crisis. Claims could arise out of litigation brought by lenders, shareholders, insurers, investors, and trustees, it said.
If claimants can show that directors or other employees acted negligently in selling mortgages to high-risk customers, or negligently sold on bad debt, they could be entitled to compensation.
This will trigger claims by defendants under the D&O and/or E&O policies.
The crisis has been caused by US mortgage companies making loans to high-risk customers with poor credit histories.
These high-risk debts were sold on to various financial institutions, which in turn sold them on to other institutions. Mortgagees have been defaulting on payments in large numbers, causing the current owners of the debts to lose money.
