Risk Management

Duck and Cover

What AIG's near collapse means for D&O insurance policy holders.
Graham BuckNovember 3, 2008

The near collapse of insurer American International Group in September put many corporate executives on edge. The reason for the nervousness is that AIG has enjoyed a market-leading position for directors’ and officers’ liability (D&O) insurance — a cover that, in addition to long-time buyers among Europe’s blue chips, many smaller companies have taken out in recent years.

Although executives in Europe are still less exposed than their American counterparts to claims brought by disgruntled shareholders or employees, new legislation — such as the introduction of the concept of corporate manslaughter — has made firms keen to add D&O to their insurance portfolios. As the world’s biggest insurer and a pioneer of the cover, AIG has often been the first port of call. Following an $85 billion (€64 billion) bailout, the US government now controls 80% of AIG’s shares.

“There was obviously a lot of concern from clients when the news first broke,” says Ian Nichol, a partner with the London broking and risk management group Jardine Lloyd Thompson. “We worked on a number of contingency plans should the worst case happen and AIG collapsed.” While the US government lifeline has calmed nerves, and none of Nichol’s clients have asked for a mid-term transfer of their D&O cover to another carrier, he notes that several companies want to expand the range of options available when their policies come up for renewal.

For Stephen Pugh, the part-nationalisation of AIG is reassuring enough to continue doing business with the firm. “We’ve just renewed our cover and gone with AIG,” says the finance director of Adnams, a UK-based brewer. “While we had some debate about this, our view was that no insurer is without risk.” Even so, rivals such as Zurich and Chubb are poised to make inroads during the next round of renewals, should AIG’s new Washington, DC-based owner deem D&O too exotic for its taste.