Insurance News

Directors and officers liability rates fall 16.4%

Posted on: September 25, 2010

The market for directors and officers liability insurance remains soft, according to a quarterly pricing index that an Aon Corp. unit released Tuesday.

The price of D&O coverage decreased 16.4% in the second quarter of this year compared with the same period last year, concluded the report from Chicago-based Aon’s Financial Service Group. That is the largest decrease since the fourth quarter of 2007 and the second consecutive quarter in which prices declined by double digits, according to the report.

Comparing only programs that renewed in the second quarter last year and this year, the price decreased 9.9%, the report said.

Aon also said its analysis shows that claim frequency is more important than claim severity in influencing D&O pricing.

“The average (securities class action) settlement has increased by 80% since 2003, while D&O rates have decreased by 57%, proving little-to-no correlation between severity and D&O pricing,” the report said.

The average class action settlement in the second quarter of this year was nearly 28% higher than the preceding three-year average, while the number of filings was about 12% higher than the second quarter of 2009, the report said. Only 16% of those class action suits were filed against financial firms, compared with 46% a year earlier.

Financial firms, which have faced the toughest pricing for D&O coverage over the past few years, saw rates drop 3.5% in the second quarter, Aon said in the report.

About 28% of companies bought higher limits than a year ago, suggesting that firms are using some of their premium savings to increase policy limits, Aon said.

Aon attributed the price decreases to less frequent securities class action filings and to a “mini-bull” market run between March of 2009 and March of this year, the report said.

Copyright © 2010 Crain Communications, Inc.

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