The executive vice president acknowledges that there is a risk of contagion to the global economy.
Markel International, an insurer specializing in professional liability and executive liability products, highlighted today that the "subprime" mortgage crisis in the US will cause a worldwide increase in lawsuits against credit rating agencies and financial institutions.
Speaking to the press in Madrid, Markel Corporation's executive vice president, Paul Springman, noted that "there is evidence of the contagion of the US mortgage crisis to the world economy," although "it will have more of a short-term psychological effect than a long-term economic impact."
Despite this, the true "magnitude" of the turbulence caused by the crisis "is still unknown," and he predicted that in the coming years there will be a proliferation of complaints and lawsuits against the rating agencies that gave good ratings to the structured financial products in which some entities had "packaged" this type of mortgage.
Furthermore, if interest rates continue to rise in the US, it will be more difficult for consumers to find financing and obtain a mortgage to buy a home, which will ultimately lead to a slowdown in the economy and business activity.
According to Esteban Manzano, the company's general delegate in Spain, "the concern existing in the United States and the United Kingdom about the crisis has spread to the Spanish financial market due to the impact it may have on its investments."
Furthermore, "some sources in the insurance sector have warned of a foreseeable increase in lawsuits against financial institutions due to a possible lack of diligence on the part of administrators," he added.
In his opinion, "the effect of a possible recession in Spain could be more noticeable in sectors that are more sensitive to a change in the economic cycle, such as the financial and real estate sectors."
Interest rate hikes will particularly affect the most indebted companies, such as some construction firms, while more and more executives of Spanish companies are turning to the insurance sector to inquire about taking out directors' and officers' liability (D&O) insurance.
All of the companies in the Ibex and 50 percent of those listed on the stock exchange already have this type of coverage for their directors, while now it is the senior executives of SMEs who are taking them out the most, explained the director of D&O insurance in Spain, Jaime Romero.
Furthermore, Springman added that the effects of the crisis will be felt throughout the international insurance market, "not only in terms of claims against directors and officers, but also in relation to the financial backing of the Bermuda insurance market."
He explained that much of the capital underpinning this market comes from the same credit institutions whose funds have been trapped in the mortgage crisis, so Bermuda investors may be forced to sell assets, which could lead to a "tightening of the insurance market" that would reduce capacity levels for some insurers and "create opportunities for specialist insurers like Markel."
Furthermore, Markel analyzed the new Spanish legislation affecting D&O and professional civil liability and assessed the business opportunity presented by the Professional Companies Law, which requires these companies to take out insurance to cover the liability they may incur in the course of their business.
Manzano also referred to the impact of the Insolvency Law and the General Tax Law on senior management positions, since "it will translate into an increase in liability actions against administrators," as well as the importance that the Equality Law will have in the insurance sector, whose implementation will lead to an increase in discrimination lawsuits.
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