NU Online News Service, Jan. 31, 1:53 p.m.EST

Moody's Investor Service said recentreports that show a record high in securities lawsuits are creditnegative for writers of directors and officers liability.

The rating agency's weekly outlook stated that the insuranceindustry will bear increased costs since a “vast majority” ofcorporations being sued in securities-related lawsuits carryD&O insurance.

“Given the relatively long average period for claim litigation,adjudication and settlement, the increased litigation costs arelikely to affect profitability for D&O writers in the comingthree to five years,” Moody's reported.

Moody's said defense costs are normally part of the policywhether litigants are successful in a settlement or a verdictawarding damages; therefore D&O insurers “can incur significantclaim costs.”

The outlook cites insurance researcher Advisen, who saidsecurities-related lawsuits filed hit a record 1,196 in 2010 andthe average settlement increased to $37 million from $29 million in2009.

A plaintiffs' attorney taking part in a webinar sponsored byAdvisen said D&O insurers in 2011 should prepare to see more securities lawsuitsrelating to the subprime mortgage crisis. A suit filed by Allstate Corp. against CountrywideFinancial Corp. is a good example.

Moody's said it expects less lawsuits filed in connection withthe credit crisis, though the rating agency predicted an increasein mergers and acquisitions-related lawsuits. This trend waspointed out in a recent report by Stanford Law School andCornerstone Research.

D&O carriers do not appear to have seen an increase in claimlosses due to smaller community and regional bank failures, saidMoody's.

In reporting fourth quarter profit recently, Chubb Corp. said ithad not yet seen sizable claims activity in thecommunity bank arena thus far.