Elaborate risk estimate for D & O insurance

Lawyers, brokers and insurers exert massive criticism of the new law regarding the appropriateness of executive compensation (forestay), adopted by the German parliament in mid-June this year. It's on 5 August 2009 entered into force. Through various schemes, the law is to ensure that when fixing the remuneration of directors continue to put greater incentives for sustainable corporate development. Also, it should be easier to cut salaries at the deteriorating situation of the company. In addition, through the forestay at D & O insurance companies, the agreement of a deductible for board members is mandatory. With the so-called directors 'and officers' liability (D & O) managers protect their companies against claims that may make the company itself or a third party to the manager because of a breach of duty. "Does a company is an insurance policy to hedge against risks of a board member from his professional activities for the company from a deductible of at least 10 percent of the damages provision at the rate of half times the fixed annual remuneration of board member," says the appropriate wording. For existing D & O insurance was a transitional period until 1 July 2010 granted. Until that time, these contracts to the new laws need to be adjusted. Die Anwendung des Gesetzes und dessen Interpretation ist derzeit noch mit vielen Fragezeichen versehen. "The law will pass the ultimate goal, as the board members will secure the future private. As a result, the whole leads to an insane bureaucracy," says Michael Hecker attorney specializing in insurance law from Munich. That the liability of the Board is not limited to, be harmful to the limited liability companies. "In the law it is to blind activism of the Federal Government is going to the demands of the market over," says Hecker. Obviously, the insurers do also difficult to calculate appropriate premiums for risk-and D & O insurance. "The calculation of insurance premiums is not transparent", Michael Hendricks, Düsseldorf lawyer and expert in D & O insurance. For DAX companies, the prices varied depending on the provider from 5000 to 50,000 euros. This price gouging would be detrimental to the whole market. "Some insurers have dropped quickly so-called deductible coverage on the market, without clarifying the many open questions to begin." Says Hendricks. All experts agree that a ban on self-insurance would be unconstitutional. From a "class struggle birth in the wake of the election campaign," says Mark English from the industrial insurer ACE in Frankfurt, which draws since the mid-nineties on the German market related risks. Risk-adequate premiums had been achieved in recent years, hardly more. As a consequence, ACE had withdrawn from the market, where a final price risk-taking was not possible. "This is a question of culture and the consequent risk underwriting and risk management," says Deutsch. One reason for the policy of a more conservative underwriting lies in the history of the insurer. ACE was founded in 1985 with headquarters in the Cayman Islands by a consortium of 34 companies. Since one years ACE operates as a limited company under Swiss law. The risk estimate for D & O insurance is made up of several components. The, including profitability and the level of indebtedness of the company, the maturity of debts, the liquidity situation and the quality of management. As part of a balance sheet analysis, the insurance risk managers to raise the performance of the last three years. Moreover, the assessment of an industry positioning, and possibly the inclusion of external ratings. Thus the burden on the insurer is relatively high. "There are, however, the premiums for years in the descent, there is currently no healthy competition," says Dankwart of Schultzendorff, head of the ACE for the countries Germany, Austria and Switzerland. There Schultzendorff of mind that the bottom line is the entire insurance industry must pay for it collectively, if not calculate individual account of risk insurance.