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Aspen finally places FI reinsurance programme; 2008 loss fears mount

Bermudian-headquartered (re)insurer Aspen Insurance Holdings Ltd has endured a struggle to renew the reinsurance programme for its financial institutions (FI) book written out of London reflecting concerns over the sector's loss exposures, The Insurance Insider can reveal.

According to market sources, the Brit Insurance-led programme, due to renew at 1.1, was only completed in the last few days after Aspen agreed to offer payback premium in addition to the standard premium, and to make structural changes to the underlying book of business.

It is thought that the book - underwritten by former QBE Limit executive Adrian Fox on Aspen company market paper, rather than through its Lloyd's syndicate - was intended to focus on mid-market business.

But reinsurers are understood to have been concerned that the 2008 portfolio - which amounted to an estimated £20mn of premium income - may have significant cover for US investment banks.

Fox was a lead market for FI cover for US investment banks such as JPMorgan and Citibank at QBE Limit, The Insurance Insider understands.

Meanwhile, he is also well known to be a leader in the Icelandic banks market, which is expected to produce FI losses as a result of a number of high profile collapses.

And, as previously revealed by The Insurance Insider, Aspen is the lead on the primary layer cover for Lehman Brothers on the bankers' blanket bond policy that could cost the troubled financial institutions market $175mn in relation to alleged fraud against the collapsed bank's Tokyo branch.

The FI reinsurance programme was placed by RK Carvill broker David Sowery, and is thought to have seen difficult negotiations spanning 4-5 weeks before being completed, with Brit retaining its status as lead reinsurer.

With Carvill no longer accepting new business incepting after 1 April, the contract to place Aspen's FI reinsurance is expected to go out to tender.

Restructuring of Aspen's FI book includes cutting capacity to write North American directors' and officers' (D&O) and errors' and omissions (E&O) cover.

As previously reported, claims inflation in the FI market is expected to soar as a result of up to an estimated $4bn in D&O and E&O losses relating to the alleged $50bn Bernard Madoff Ponzi scheme, adding to the estimated $10-12bn in credit crunch-related losses set to hit the professional and management liability sectors.

Broking sources have told The Insurance Insider that the FI market as a whole is looking for 15 percent increases across the board, while in London there is increased pressure on capacity as a result of the UK pound's weak position against the US dollar and Euro.

Aspen was unavailable for comment at the time of going to press.

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