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Underwriting community bank directors’ and officers’ insurance

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International Journal of Disclosure and Governance Aims and scope Submit manuscript

Abstract

This article describes the ways and means used by Community Bank Directors and Officers underwriters to analyze and price insurance. It suggests ways in which dialog between underwriters, community bank risk managers and others can result in a more informed and better understanding of the bank’s risks, resulting in the best terms over various insurance market conditions.

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Notes

  1. Community Banks provide approximately US$3.6 trillion in credit.

  2. Early D&O Policies were divided into folders labeled ‘A’, ‘B’ and ‘C’.

  3. The author acknowledges limitations in principles and rules based accounting standards and suggest as further reading; Study Pursuant to Section 108 (d) of the Sarbanes-Oxley Act of 2002 on Adoption by the United States Financial Reporting System of a Principles Based Accounting System.

  4. A term coined by the SEC over a period of years as the MD&A sections of public company financial statements became required disclosure.

  5. Federal Deposit Insurance Corporation Rules & Regulations-2000 (Part 325 Capital Maintenance), Tier 1 Capital=Common stock+undivided profits+paid-in-surplus+non-cumulative perpetual preferred stock+minority interests in consolidated subsidiaries – intangible assets (with limited exceptions) – identified losses-deferred tax assets in excess of the limit set forth in section 325.5(g).

  6. A means of acquiring another bank’s assets with the FDIC agreement to pay an amount of potential loan losses.

  7. The Gordon Dividend Model formula is P=D/k−G, where P is stock value; D is the expected dividend per share one year from now, k is the required rate of return for the equity investor and G is the growth rate of dividends (in perpetuity).

  8. Underwriters will take into consideration various corporate or enterprise risk management practices such as the framework of The Committee of Sponsoring Organizations of the Treadway Commission and so on.

  9. Consolidated Report of Condition and Income that is required to be filed with regulators.

  10. Between January 2008 and December 2011, 414 insured US commercial banks and thrifts (banks) failed. Of these 85 per cent (353) were small banks with less than $1 billion in assets.

References

  • Anon (2012) Community Banking by the Numbers (The FDIC Community Banking Research Project). S.l.: Federal Deposit Insurance Corporation.

  • Audit Analytics (2014) 2013 Financial Restatments (A Thriteen Year Comparison), S.l.: Audit Analytics.

  • Bailey & Cavalieri, LLC (2007) D&O Policy Terms:Know What to Ask For, S.l.: S.n.

  • Financial Accounting Standards Board (1975) Statement of Financial Accounting Standards No. 5, Accounting for Contingencies, S.l.: Financial Accounting Standards Board.

  • Financial Accounting Standards Board (2001) Business Combinations Statement of financial Accounting Standards No. 141, S.l.: Financial Accounting Standards Board.

  • Redington, W.C. (2015) State of the Errors and Omissions Market 2015. Uncasville, s.n.

  • United States Government Accountability Office (2013) United States Government Accountability Office Testimony Before the Committee on Banking Housing and Urban Affairs. Washington DC: United States Government Accountability Office.

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Authors and Affiliations

  1. 1801 Market Street, Suite 2390 Philadelphia, 19103, PA, USA

    William C Redington

Authors
  1. William C Redington
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Correspondence to William C Redington.

Additional information

1CPCU is Sr. Vice President of Navigators Reinsurance and leads the underwriting of professional liability. He is a Chartered Property and Casualty Underwriter, holds a Master of Business Administration from the University of Dayton in Corporate Finance, and a Bachelor of Science from Marion College in Business Economics and Accounting. He has 39 years of experience in the insurance and reinsurance industry with various companies including Munich Re, American Financial Corporation and General Re. He is the author of numerous articles and papers on professional liability insurance and reinsurance, contributing editor to a Chartered Property & Casualty Underwriting Society text book on professional liability and a frequent speaker at industry conferences.

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Redington, W. Underwriting community bank directors’ and officers’ insurance. Int J Discl Gov 13, 236–243 (2016). https://doi.org/10.1057/jdg.2015.19

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  • DOI: https://doi.org/10.1057/jdg.2015.19

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