Home > Property & Casualty > D&O premiums jump as small banks feel pressure from FDIC

D&O premiums jump as small banks feel pressure from FDIC

FDICMany small banks have been heavily hit with rising D&O insurance premiums, as federal regulators seek to recover some of the $86.8 billion it paid out to community bank lenders during the financial crisis. The Federal Deposit Insurance Corporation (FDIC), has filed 19 suits against former executives and directors of collapsed banks since October. That number is expected to increase, as the agency has also authorized 94 lawsuits – the initial step regulators take immediately following a bank’s failure and prior to filing an actual claim. The FDIC then has three years from the time the bank closes to file suit. FDIC officials say the agency collected around $337 million in settlements last year and nearly $232 million in 2011.

The lawsuits primarily target directors and officers of small banks accused of approving loans that later contributed to the bank’s collapse. Insurance experts say D&O rates for small banks have jumped at least 15% in the last five years as a result of these failures, most of which have occurred in the Southeast (Georgia and Florida), Southwest (Arizona) and the West coast (California and Washington.) As a result, insurance carriers are raising deductibles, pulling out of these regions, or looking for significant rate increases and restrictive policy terms (regulatory exclusions).

The FDIC’s aggressive legal efforts have only added to the financial troubles these regional banks have been facing since the economic fallout. Lower interest rates and tighter loan regulations have left many struggling to maintain profits and caused others to try to sell themselves, although most cannot find buyers.

On the other hand, regions like the northeast remain attractive to insurers of community banks. While northeast banks face some earning pressure, insurance carriers tend to view them as attractive risks and are pricing them as such. In addition, carriers are willing to offer multi-year policies and broadened terms.

While it may be an oversimplification to say that geography is driving the premium rates in the community banking space, it’s clearly an important factor for insurance carriers, and one that banks in the northeast should look to capitalize on.


About the Author

Myles Reagan is Vice President at William Gallagher Associates and a member of the ExecutiveRisk team. He specializes in managing Financial Risks – mainly hedge funds , Private Equity/Venture Capital, mutual funds, community banks, and asset managers.

617.646.0329 | MReagan@wgains.com | Connect with Myles on LinkedIn
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