Hedge Fund Insurance Premiums Soar

May 22 2009 | 10:37am ET

Given the events of the last year—hedge funds blowing up, getting beaten up and/or ensnared in a raft of Ponzi schemes—it’s no surprise that insurance costs for the industry are soaring.

Insurance for negligence, errors and omissions and professional indemnity have all gone up, Bloomberg News reports. Negligence insurance costs about 20% more today than it did six months ago, according to Brian Horwell or Miller Insurance Services.

Horwell said that a $200 million hedge fund with a “straightforward strategy” is paying $10,000 per year more for $5 million of coverage that it was at the end of last year.

The increase in errors and omissions premiums is more difficult to track, as it tends to be quoted on a fund-by-fund basis, according to Bloomberg. But those hedge funds with a lot of debt or more complex investments are likely to be the hardest hit by the rising costs of protection.

Meanwhile, professional indemnity insurance, which offers protection against loss or damage by a client or third party stemming from mistakes or negligence, costs about 10% more than six months ago, according to Fitch Ratings.


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