Financial institutions are finding it increasingly hard to getaffordable liability insurance for directors and officers,sometimes facing rate hikes of 100 percent or more, brokers whohave eyeballed the situation said.

"Financial institutions are all having a hard time," saidDe'Andre Salter, chief executive officer of wholesale brokerProfessional Risk Solutions, Somerset, N.J. The D&O coverageproblem is not limited to small banks, but extends to the entiresector including money managers, credit companies and leasingfirms.

Mr. Salter said he found it hard to put an average number on theprice hikes. "I've seen 20 percent to 250 percent," he said.

Capacity is shrinking as financial institution losses haveincreased and carriers change their underwriting appetites or exitthe D&O line, he said.

In response, financial companies, he said, are going for lowerlimits. "What they are doing is saying 'maybe we don't need $20million' and taking half that amount."

Michael O'Connell, Aon managing director of financialinstitutions practice, said firms contemplating a reduction inD&O coverage are not doing it on the "A-side" portion ofpolicies. A-side coverage provides protection where the companycannot indemnify officers and kicks in with dollar one.

Where the coverage is being abandoned, he said, is on the "B andC" sides of D&O contracts which provide reimbursement tocompanies after they have advanced defense costs to an officer ordirector.

"For the most part, most institutions now currently onlypurchase personal liability [side A]," said Mr. Salter, explainingthat "Side B and C have become cost prohibitive for the largestfinancial institutions."

Examining annual D&O policies for the financial sector thatwere renewed in the interval between July 1 through Sept. 30, Aonfound recently that the average rate for renewals in that periodhad gone up 19.7 percent when comparing 2008 with 2007.Individually some firms faced increases as high as 100 percent, Mr.O'Connell said.

Meanwhile, Aon found D&O rates for all other sectors as agroup were down 11.3 percent.

Mr. Salter noted that financial firms are a greater risk becauseof the frequency with which they are the subject of litigation,with about half of 226 class actions filed last year targeting thefinancial sector.

Additionally, he noted the ripple effect that occurs when thereare bad results at one firm within the sector, the most recentexample being the revelation that the Madoff investment fund was aPonzi scheme.

Aon, he said, estimates that there may be between $760 millionand $3.8 billion in insurance-related losses from financialinstitutions D&O and errors and omissions policies as a resultof the Madoff situation.

Mr. O'Connell said a firm that has lost significantcapitalization value can find getting D&O cover the mostchallenging. "If it's available, it's cost-prohibitive," hesaid.

Neither Mr. Salter nor Mr. O'Connell said they knew of any firmthat has decided to go bare despite the difficulties some mayencounter in getting coverage.