It is too early to call what impact the subprime mortgage crisis will have on Directors & Officers (D&O) insurers - that is the message from David Bell, Allied World Assurance Company's senior vice-president and global product line manager for professional liability.

The credit crisis, which was sparked by losses on US subprime loans, triggered an equities sell-off in July over fears of a global economic growth derailment, while several mortgage companies were forced to file for bankruptcy.

Mr. Bell reckons that despite a number of actions being filed against companies involved in mortgages, he could only speculate as to whether any more were planned.

"It's too early to know with any certainty how subprime will impact D&O insurers," he said.

"Numerous securities class actions have been filed to-date, mostly against companies directly engaged in the mortgage business.

"One can only speculate if more filings are planned and how far the net will be cast beyond those involved in lending practices.

"Several home builders have had suits filed against them, with subprime related allegations at the heart of the complaints.

"Fiduciary (ERISA) suits have also been filed against a few companies involved in the mortgage business related to investments of company stock within their 401 (k) plans. It is still in the early stages of this dynamic and it is unclear how it will ultimately play out."

He said the effect on insurance companies' profits varied from business to business.

"That will be company specific and a function of how much concentration each company has in this and related classes of business," he said.

"Don't forget, D&O insurance has a long tail (the time is takes for the claim to move through the litigation process before settlement or judgment) and the primary carriers that have been notified of these claims are just now establishing coverage positions. Even those carriers with a high concentration of financial institution business probably are just now attempting to quantify their potential exposure."

And Mr. Bell believes there could be the potential to cause bankruptcies and impairments further down the line.

"If the economy, and housing market in particular, continues to slide then the worst may be yet to come," he said.

"Bank of America analysts suggest that more than $500 billion of adjustable rate mortgages (ARMS) will reset this year, and another $680bn next year.

"Of those, subprime borrowers purportedly account for more than 70 percent. If those borrowers are unable to pay the increased mortgage amounts, and foreclosures escalate as a result, the subprime phenomenon may be in the news well into 2008."

Meanwhile, calculating the exposure and liability of D&Os to the subprime market across the board is almost impossible, according to Mr. Bell.

"Quantifying subprime exposure at this early stage would be virtually impossible," he said.

" Logically, those carriers more heavily weighted in financial institutions may be impacted the most. Allied World has a well diversified book and has not been mentioned by the analysts attempting to quantify the exposure amounts and determine which carriers are most susceptible."

But there is hope, as he pointed out, that D&O insurers are striving to reduce this exposure and minimise the impact of the subprime investments.

"Industry publications have indicated D&O insurers are actively seeking additional information during the underwriting process to determine the extent to which potential insureds have exposure to any subprime lending loss. Underwriters are requiring written or oral responses from the insureds to a variety of sub-prime related questions," he said.

"Depending on the insured's responses, the underwriter may decline the risk or make any necessary adjustments to the premium charged or the policy terms and conditions, including the addition of specific exclusions applicable to this exposure.

"Of course while these actions may enable insurers to insulate themselves from future sub-prime lending exposure, they will remain liable for any covered losses that may arise on their current book of business."