Litigation stemming from subprime exposure could result in D&O and E&O insurance claims reaching $3bn to $4bn

Litigation stemming from subprime exposure could result in directors' and officers' (D&O) liability and errors and omissions (E&O) insurance claims reaching $3bn to $4bn, according to Fitch Ratings.

Insurers potential losses could be substantially higher if credit issues spread to sectors not directly tied to the subprime mortgage market or if market conditions lead to increased bankruptcies, said Fitch in its latest report.

The report, released on April 9, details Fitch’s examination of property-casualty companies' exposure to subprime mortgage collateral.

While negative rating actions by Fitch in the U.S. property/casualty insurance sector due to subprime exposure have been very limited, Fitch said it does expect poor collateral performance in subprime-related investments to continue in 2008.

Further, Fitch noted, highly illiquid, volatile market conditions have spread somewhat to other asset classes which could impact insurers' broader investment portfolio performance.

The agency said it was concerned about the potential for further deterioration in the market and its affect on other sectors of the credit market.