Aon Benfield has developed a $1.8 billion best estimate of direct insurance losses that could be paid out on behalf of asset management firms, banks and other firms being sued as a result of the Madoff scandal. Stephen Mildenhall, head of Aon Benfield’s Actuarial and Enterprise Risk Management practice, stated at the Professional Liability Underwriting Society’s D&O Symposium late last month that “it’s certainly going to have an impact on [insurers’] underwriting procedures…. It is astonishing that something of this size and scale managed to proceed…for a number of years without being detected,” National Underwriter Property & Casualty Magazine reports.
Asked to gauge the odds of recovering lost investments with Madoff through litigation, Sherrie Savett of the law firm Berger & Montague, P.C. stated that possible sources of recovery included the vehicle by which the investor got into the Madoff investment, such as hedge funds. “The theory is there was a lack of due diligence by those funds, and that they’re responsible for that reason,” she said.
Auditors are another potential target, she noted. “How could they have done a proper audit of the assets of a hedge fund if assets weren’t really there? We now know that Madoff didn’t even trade for the last 13 years, so there was a real lack of due diligence on the part of the hedge funds and their auditors.” Similarly, she said, there may be cases to be brought against bank custodians that were supposed to make sure the assets were there.