Changing corporate governance practices and excess capital inthe insurance market that have decreased rates for directors andofficers liability insurance may now send them plunging, accordingto a consulting firm analysis.

Advisen Ltd. said that since the fourth quarter of 2003 averageD&O premiums have fallen nearly 30 percent and factors now atplay could send rates into "free-fall."

The D&O premium decreases have been far more significantthan declines in the overall market, and seemed to be picking upsteam in the fourth quarter of 2006, when premiums dropped 5.5percent, the briefing noted.

According to Advisen, these falling rates are the result ofincreasing aggregate capacity and decreasing frequency and severityof losses.

The average premium for D&O liability insurance more thandoubled between the fourth quarter of 2000 and the fourth quarterof 2003--a rate of increase much sharper than for the overallproperty and casualty insurance market. But the trend reversedcourse in the first quarter of 2004 and has been falling steadilysince.

Capacity withdrawn from hurricane-exposed business andredeployed to other lines and regions, plus new capacity generatedby 2006 profits and more than $30 billion in new investments in theindustry, increased downward pressure on rates in 2006 for businessother than hurricane-exposed property, including D&O, saidAdvisen.

David Bradford, editor-in-chief at Advisen and author of thebriefing, said, "We are now three years into the softening D&Omarket and can clearly see the extenuating factors that arecontributing to a perfect storm for pricing declines."

Since the corporate governance scandals of the early 2000s,shareholder activism and government oversight have created muchgreater transparency in corporate management. "And when you combinethat with the current capital environment in the industry, you havepricing conditions that may threaten to free-fall," Mr. Bradfordwarned.

Securities class action suits remain the principal source ofD&O losses for public companies, but the number of suits filedin 2006 fell sharply, due in part to greater transparency.

"This kind of visibility into fluid market conditions wasunavailable to insurance professionals even just a few years ago,"said Mr. Bradford. "But now we can have greater insight into thepast which allows us to better understand the future and beprepared for, rather then react to, those market dynamics."