NEW YORK--Insurers providing directors and officers liabilityinsurance should not become complacent after reports of a declinein securities fraud class actions, a Chubb executive saidyesterday.

John Degnan, vice chairman at the Warren, N.J.-based insurer anda former New Jersey attorney general, voiced that view in reactionto statistics showing the number of such lawsuits plunged 38percent in 2006.

He explained to his audience there is reason to be skeptical ofsuch data.

While class actions are down, when shareholder derivative suitsare added to the total, overall D&O claim frequency is actuallyup--not down--in 2006, Mr. Degnan said. Derivative suits arebrought by shareholders on behalf of the company, naming directorsand officers as defendants.

He also told underwriters and brokers gathered yesterday at theProfessional Liability Underwriting Society here to pay attentionto the lessons of the past, urging them to remain vigilant aboutpotential changes in a currently calm D&O landscape.

Mr. Degnan, during a luncheon speech, echoed speakers at earliersessions who pointed to a good economy, a less volatile stockmarket, several favorable court rulings and the positiveconsequences of the Sarbanes-Oxley Act as drivers of a D&Oenvironment that seems to be a "perfect calm" after the "perfectstorm" that D&O insurers found themselves caught up in earlierin the decade.

He told his listeners to guard against the tendency to invokeeasy descriptors like "perfect storm" and "perfect calm." Mr.Degnan noted that even the improving case filing numbers beingreported now are suspect when examined in the context of adeclining number of public companies.

"We should not overlook ongoing merger and acquisition activityin the last decade, not to mention an increasing number ofgoing-private transactions," he said, noting that the number ofpublic companies dropped 30 percent from 1997 to 2006--from roughly9,300 to 6,500.

The frequency of securities suits adjusted for thisconsolidation is very close to the level of a decade ago, hesaid.

Mr. Degnan and others speaking at the conference noted thatcases involving allegations of options backdating have been filedas derivative suits, rather than class actions, because theytypically haven't fueled massive stock drops, and that backdatingcases now number somewhere between 130 and 140.

These backdating cases are excluded from the January publicationof securities class action statistics by the Stanford Law SchoolSecurities Class Action Clearinghouse (a joint project betweenStanford Law School and Cornerstone Research), which announced theoften-cited 38 percent decline in securities class actions, hesaid.

In the past, the report similarly excluded IPO cases in oneyear, equity analysts' cases in another and mutual fund markettiming cases in yet another.

Comparing this type of analysis to the "old insurance industrytrick" of "but-for" earnings reports (referring to reports byinsurers that exclude the impacts of asbestos charges or naturalcatastrophes to present more favorable results to investors), hesaid, "We have to be skeptical of securities claims data."

"At some point, we need to accept that systematic events havebecome the norm."

Mr. Degnan also commented that while derivative claims havehistorically been viewed as lacking the severity potential ofsecurities class actions, an increase in the number of A-side onlypolicies being written by D&O carriers heightens the impact ofthese cases. A-side policies specifically provide coverage insituations where a company can't indemnify directors andofficers--most notably covering derivative suits.

During his presentation, Mr. Degnan also noted that a factordepressing the number of class actions in 2006 was the May 2006indictment of Milberg Weiss, one of the most active plaintiffsfirms in filing securities class actions.

Mr. Degnan sounded a final note of caution, reminding PLUSattendees that the D&O market was a "picture of health" in 1997before it went into decline.

The industry responded then "with a race to the bottom" inD&O pricing and abandoned good sense in the negotiation ofpolicy terms, he said, urging discipline and vigilance.