Brazilian corruption probes, bankruptcies spawn insurance boom

Insurers who sell policies limiting executives’ liability from lawsuits have seen a surge in business thanks to a sprawling Brazilian corruption probe involving state-controlled Petroleo Brasileiro SA and a rash of corporate bankruptcies.

The country’s so-called Directors & Officers (D&O) insurance market has more than doubled in value since 2011 based on the volumes of premiums paid, rising to 370 million reais ($114 million) last year, according to data from industry regulator Susep, the most recent available.

Such policies, which cover claims against senior executives for the decisions and actions they take as part of their management duties, typically cover legal bills arising from a criminal investigation. However, if the defendant is convicted and criminal intent is proven, then the insurer may demand repayment of those costs, says Juliana Casiradzi, D&O manager at Marsh.

Together with the sweeping Petrobras probe, a severe recession has contributed to a surge in claims to about 47 percent of premiums by 2015, Susep data show, up from just 9 percent in 2011. Typically, bankruptcies trigger tax, labor and environmental liabilities against companies and their executives.

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