Bank D&O Insurers and Reinsurers

The Invictus Bank Intelligence System (IBIS™) version of the ICAM model has been designed for insurers underwriting Directors’ & Officers’ liability insurance for financial institutions. With between 100 and 200 bank failures a year over the last several years, and with projections that this trend is expected to continue, D&O insurers must have the very best and most current information for effective underwriting and risk management. Most importantly, it must be able to look forward accurately and not just rely on old style regression analysis.

Bank failures generating litigation occur not from insolvency, but long before that, when capital levels fall below regulatory minimums. The resulting failures can generate civil legal action against officers and directors by the FDIC, shareholders, and other affected stakeholders.

For D&O underwriters to accurately forecast the expected deterioration of a bank’s capital levels or, conversely, a bank’s ability to survive a prolonged recession, is a critically important function. Invictus’ has tailored its ICAM methodology to provide a unique, powerful and highly predictive underwriting tool in IBIS.

“This is the most efficient, cost effective and accurate tool that I have ever seen in the business of financial institution underwriting. We gauge the payback on IBIS to be less than two years and expect that it will significantly reduce our combined ratio by lowering our potential losses while at the same time allowing us to increase our book of business without increasing our staffing needs.”

             - a large US bank D&O underwriting manager

“We see lots of models claiming to be ready for primetime, but I can honestly say that I have never seen anything with this kind of power and potential. This truly is a tool to get us through the paradigm shift taking place in our business.”

             - offshore financial institution reinsurance SV

 


The Problem...

The U.S. banking system has undergone a series of financial shocks that have drastically reduced regulatory capital at many banks. Up until the past 3 years this business has been extremely lucrative for D&O underwriters. These extraordinary ongoing stresses however, make it a minefield as asset quality is reduced at a dramatic pace, in some cases threatening banks’ very survivability.

Traditional capital adequacy and performance rating systems — adequate during normal economic climates — no longer provide clear indications of bank sustainability and performance. Given today’s razor thin regulatory capital cushions, combined with rising levels of litigation against officers and directors of failed banks, existing forecasting methods and metrics can no longer provide underwriters with the certainty and comfort they need.

The Solution...

The Invictus system, designed to expose both "overly optimistic" asset classifications and the impact of recessionary pressures on assets and mismatched liability structures, overcomes these limitations. The system provides underwriters with reliable clarity on:

  • The banks’ present financial position along with regional and national peer group ranking.
  • The quantification of the short-term and long-term deterioration of regulatory capital levels in a recessive environment, including the timing of the bank’s allowing for a perfect review prior to renewal of coverage or at the point of initial underwriting and risk acceptance.
  • The perfect opportunity to review the reports and data with the insured to make sure they understand the underwriting concerns, pricing issues and even the potential for non-renewal (in cases where maximum stress impairs regulatory capital below minimum regulatory requirements).
  • The high correlation between director lawsuits, bank foreclosures and the timing of such.
  • The relative ranking and comparison of insured banks within peer groups or within the total insured book
    of business.
  • The evaluation of new business opportunities based on comparative rankings.

With its specifically tailored IBIS system, Invictus can help your underwriting efforts
in a number of key areas, including:

Portfolio Analysis

  • Analyzing the insurer’s portfolio by risk category.
  • Creating customized classes by geography, demographics, size, asset profile, and others.
  • Creating ‘watch lists’ of potentially troubled banks and a customized highlighting of those banks
    for special underwriting actions.
  • Allowing underwriters to "add-in" non-public data and engage in "what if" scenarios.

Portfolio Management

  • Creating Periodic Reviews of lower category banks and those that are in transition.
  • Requiring more detailed analysis, prior to renewal, of deductibles, terms of policy, etc.
  • Preparing underwriters to assist banks in establishing financial solutions on a timely basis.

Business Development

  • Effectively analyzing and targeting banks in better risk class with forward-looking analytic.
  • Increasing the overall quality of the book and anticipating changes in performance rather than reacting to them
    after the fact.
  • Enhancing reinsurance relationships by providing more detailed information on risk analysis.

Litigation & Claims Management

  • Anticipating a loss before it happens by a forward-looking underwriting review.
  • Developing a "defensible position" in anticipation of litigation.

To see some features of the Invictus System as it pertains to a D&O underwriter’s cost benefit analysis,
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