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Governance : Limits Of Director Liability
17 November 2011
The Sasin Centre for Sustainability Management and Net Impact Bangkok Professional Chapter
www.thailand-insurance.net www.thailand-insurance.net
30 November 2012
Thai Floods
Iris Lai Source: BestWire Services Date: November 10, 2011 Thailand's ongoing flood disaster is expected to trigger significant commercial and business interruption losses to manufacturing and supply chains in global markets as major industrial parks have been submerged and production suspended for many international automobile and computer producers. "The long-term economic impact of this event is set to be far-reaching and no reliable estimates can yet be made as to the impact the flooding will have on the global economy," said risk modeler AIR Worldwide in a statement. Damage claims from the floods are expected to exceed 600 billion baht (US$19.5 billion), including actual damages and losses due to suspended business, according to Thailand's Office of Insurance Commission. The greatest damages are in seven industry "estates," with estimated insured losses of 457 billion baht. As the country, as well as Bangkok, is still dealing with floods, Thailand's General Insurance Association said it "can't make any estimation for insurance losses and impact" at this point. Insurance Australia Group Ltd. said the flooding event will cost it an estimated A$50 million (US$51.4 million) in net claims. This estimate assumes the remaining protection available under the group's aggregate reinsurance cover, of about A$25 million, is fully utilized, said IAG. The insurer said claims assessments will take several weeks to complete as the water level slowly recedes. The Australian insurance group's Thailand unit received 1,500 claims. A number of the nonlife insurer's commercial customers have been affected by the event, said IAG. The insurer provides insurance under the Safety and NZI brands, offering motor and commercial products, respectively. More than 80% of Safety's gross written premium comes from motor insurance in Thailand. Automobile and computer manufacturing are the two particularly hard-hit sectors, said AIR. Honda and Toyota have had severe disruption for their production, not just in Thailand but worldwide due to lack of parts. Japan's casualty insurers may face about US$2.5 billion in net payouts to cover damages from Thailand's floods, according to a report by Deutsche Bank AG (Best's News Service, Nov. 1, 2011). More than 9.9 million people have been affected in 64 of 77 provinces across Thailand by flooding, the country's worst event in decades. Substantial damage has occurred to personal and commercial properties, with about 3.3 million homes and 15,000 industrial plants sustaining various levels of flood inundation, according to reinsurance intermediary Aon Benfield. In Thailand, flood insurance is prevalent in the industrial parks and the brunt of this loss will be borne by the insurance industry, said AIR. The major cost of the flooding is on business interruption. Less than 1% of residential properties are insured for flood damage, according to the General Insurance Association. Japanese insurers are expected to account for 80% of the estimated insured losses. (By Iris Lai, Hong Kong bureau manager: [email protected]) BNviaNewsEdge
Thailand Flooding Expected to Trigger Business Interruption Losses in Global Markets
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BN: BestWireNovember 10, 2011 Thursday
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11/11/2011http://ww3.genre.com/ci/iNet.nsf/iDocNBPrint/D69DED6FB8ACB32F85257944005...
30 November 2012
Thai Floods
• Early days – losses not settled
• Initial estimates high: USD $15bn – USD $20bn
• Estimates including Business Interruption (usually 60 day waiting period)
• Claims mainly across Motor Vehicles & Property All Risk (IAR)
• Japanese insurers estimated 50% to 60% of loss
• Corrective local rate increases expected 20% - 400%
• Sub-Limited Flood cover , higher rate & deductible – case by case
• Market studies & data collection underway by Dhipaya
30 November 2012
Catastrophe Insurance Market
Significant,
Unprecedented
Global Losses
USD $30bn +
USD $12bn +
2005
American
Hurricanes +
associated
Flooding USD 45bn.
30 November 2012
Catastrophe Insurance Market
Losses not fully insured …variable insurance penetration
November 2011 - “Asia-Pacific accounts for 80% of natural catastrpohe losses this
year….Insurance density remains very low in many countries of the Asia Pacific region,”
Munich Re says. “On average, only 6% of natural catastrophe losses were insured over the last 30
years.” It calculates economic losses this year at $US259 billion ($250 billion) – of which only
$US52 billion ($50 billion) was insured.
30 November 2012
Catastrophe Insurance Market
Losses well
spread …
30 November 2012
Catastrophe Insurance Market
And major reinsurers well reserved ….
30 November 2012
Catastrophe Insurance Market
18 months Global catastrophes have not moved market rates to date – surplus capacity ,
over-supply
ROL – Rates on Limit (ROL) offered - flat at June 2011, and trending DOWN since
2006 – AFTER Katrina.
30 November 2012
Soft Market Headlines
“The Rate Debate: Japan Quake Alone Not Enough To Harden Market” 16.3.11
“Insurance, reinsurance rates remain soft”: Nov. 09, 2010 9:43 AM CENTRAL
Jardine Lloyd Thompson Group P.L.C. said insurance and reinsurance rates remain soft in most
classes in which the brokerage operates, with the exception of offshore energy business.
“Worldwide Insured Cat Losses Nearly Double In 2010”
December 16, 2010
30 November 2012
Insurance Market Trends
Endless cycle – short term memory , opportunistic capital inflows and competition
30 November 2012
Flood Impact to Governance & Directors
• Destroyed / damaged company or balance sheet = shareholder or receiver
actions
• Board Insurance Policy (D&O Liability) may have exclusions for
• Failure To Insure
• Bodily Injury & Property Damage
• Willful Breach of Regulations & Law
• Pollution
• Lay-off’s result in Employment Practices Liability claims (EPL insurance)
• Failure to preserve & protect key business assets = negligent management
• D&O insurer may or may not be obligated to advance legal defence costs.
C H U B B
Directors’ and Officers’
Liability Insurance Understand Exposures
CHUBB INSURANCE CO., (THAILAND) LTD.
Chubb Specialty Insurance Department
C H U B B Why do we need D&O Insurance?
As directors of the company, there are several duties and liabilities
imposed under various provisions of the law.
Duties can be found under common law, civil law and statutes.
Statutes such as the Companies Act imposed on directors the duty
to act with care and skill.
If directors are held to be personally liable, they would have to
defend and pay the damages on their own.
• Protects the cover for innocent D&Os – who may become collateral
damage.
C H U B B
C H U B B
C H U B B D&O Trend in Thai market
• D&O Claims continued to increase since 2007, such as EPL Claim (based on our record)
• Local Regulation – Draft Law on Class Action Bill that the cabinet was approved on 9 November 2010
• Listed companies on the Stock Exchange of Thailand (SET) - Good Corporate Governance
30 November 2012
Thank You
CHUBB INSURANCE CO., (THAILAND) LTD.
Chubb Specialty Insurance Department
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