By Mark E. Ruquet, associate editor, National Underwriter Property & CasualtyDespite substantial losses directors and officers and errors and omissions insurers experienced from the financial crisis, ratings actions have been negligible, Moody's Rating Service said.

In a report, "D&O/E&O in the Cross-hairs of the Financial Crisis," Moody's said that lack of ratings action taken against insurers reflects "the overall solid financial profile of most insurers" as they experienced the recession.

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The lack of ratings action also reflects the small size of the D&O segment within the overall profile of the property and casualty insurance market, the report said.

Moody's highlighted a 2008 report from Advisen in which the consulting firm said combined insured losses for D&O and E&O for the period 2007-2009 would amount to $9.6 billion.

Securities class action lawsuits surged in 2007 due to the subprime mortgage crisis, reaching a peak in 2008-2009, and then began to subside in 2009 and early 2010. Financial institutions, particularly those involved in real estate financing, were the primary target of litigation, securities fraud and shareholder derivative suits, and regulatory enforcement, Moody's said.

Moody's noted capacity remains abundant in this segment among most D&O and E&O insurers, affecting pricing. However, a large, publicly traded company that is facing a tough economy will find a challenging insurance market and has likely already seen sharp premium increases through the financial crisis.

Plaintiffs' attorneys are finding barriers to bringing cases, the report says, with the Private Securities Litigation Reform Act of 1995 and court decisions that have raised the standard of proof. However, attorneys continue to test "the boundaries of securities suits with novel theories of liability," and they are filing more cases in state courts to avoid the federal court system.

Of all the insurers, American International Group leads all insurers in market share of D&O and E&O insurance, followed by Lloyd's. Chubb places third with the combined markets.

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Losses don't affect Moody's D&O, E&O insurers' ratings

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