Gallagher’s Financial Institutions team produces a monthly bulletin which reviews the insurability of the largest operational risk events reported recently.
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Defence costs mounting in high profile prosecution of four ex-Barclays directors

Recent press reports suggest that Barclays have already incurred around GBP24m in fees in defending criminal proceedings against four ex-directors. The defendants, including the former chief executive, John Varley, are facing criminal charges in relation to the raising of billions of pounds from Qatar at the height of the financial crisis in 2008. Of course the defence of criminal charges against directors is a core coverage under D&O insurance. If such insurance is involved in this case, Barclays would be required to pay an excess in the first instance as it is reported that it is indemnifying the directors for their defence costs (if the company is not indemnifying its directors, then no excess is payable under D&O policies). It appears that in this instance the defence costs will increase further given that the trial has recently commenced and is set to run for several months.

Securities Class Action Lawsuit Filings in the USA remain at near record levels

According to recent reports the number of securities class action lawsuit filings in the USA remained close to record levels in 2018. There were 403 new federal court securities class action lawsuit filings in 2018. While the number of filings in 2018 was slightly below the 412 federal court securities suit lawsuits filed in 2017, the 2018 filing total is nearly 210% above the 1996-2016 average annual number of filings of 193. Coverage for the company defending such actions can be found under the Side C element (aka Securities Claim coverage) of D&O policies, and such policies are also designed to respond if the actions are brought against directors.

Hedge funds suffer worst year since 2011

Hedge Fund Research’s main index, which monitors funds across strategies, was down 4.07 per cent last year, albeit that compared favourably to the 4.38 per cent decline for the S&P 500 index. Poor investment performance is the main driver for claims against fund managers. Given that hedge funds are generally beating the main US index, it seems unlikely that a flood of such claims will hit in the immediate future. However, if equity markets continue recent declines and enter a prolonged bear market, it will be inevitable that fund managers investing long in such markets will be susceptible to claims for poor investment performance. In such circumstances professional indemnity can be an essential line of defence.