Claims frequency is not having an effect on directors andofficers liability insurance pricing and coverage, according to aJune analysis from insurance broker Aon, finding that the D&Omarket is still a buyer's market.

A quarterly analysis of the market by Aon's Financial ServicesGroup says that the average price for $1 million in D&Ocoverage limits dropped 15.7 percent in first-quarter 2011 comparedto first-quarter 2010.

Aon notes that since policies are written for a 12-month period,the year-over-year comparison "is a close approximation of renewalpricing."

The report also says:

• Federal securities class-action claims frequencyincreased 31.4 percent from the prior-year quarter.

• The average federal securities class-actionsettlement decreased 21.5 percent from the preceding three-yearaverage (excluding settlements of $1 billion or more).

• The financial-sector pricing decreased 11.5 percentcompared to the prior-year quarter (the sixth consecutive decreaseyear-over-year).

• 20.3 percent of companies purchased higher limitscompared to the prior-year quarter.

Aon says that taking all of this evidence together, "we believethese facts continue to bode very well for buyers of D&Oinsurance through 2011."

One element that is keeping prices low is capacity, Aon notes.During the past two years, the theoretical capacity for one buyerof D&O increased to about $1.2 billion in limits, but the firmsays its largest programs have purchased half that amount.

This market imbalance is increasing competition, keeping pricingdown, and there is nothing in the foreseeable future that shouldchange this situation, Aon says.

One area of concern Aon did note was the banking industry, wherebank failures have increased to more than 100 per year for the pasttwo years, from just around 25 per year for the prior eight yearsfrom 2001 through 2008.

In 2009 there were 140 banks closed by the Federal DepositInsurance Corp., and in 2010 the number jumped to 157.

Most banks are not publicly traded, and thefailure was solved through acquisition of deposits by otherbanks.

The reason Aon says it notes the bank failures is because theFDIC could pursue directors and officers of the banks withinsurance coverage for recovery. It says that the FDIC has takensteps to directly discuss a settlement with insurers "without wastingvaluable policy limits on protracted defense litigation."

The broker notes that the FDIC has a few years to file a claim,but not all failures result in a lawsuit. Between 1985 and 1992 itbrought claims against 24 percent of bank failures.

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 Aon says what concerns insurers is not the severity ofclaims, but their frequency, which could pose a problem forcarriers in the future.

The indicator of D&O pricing trends in Aon's latestquarterly report—the Aon Quarterly D&O Pricing Index—iscompiled using the proprietary policy data of Aon's FinancialService Group.

According to a report footnote, the D&O Pricing Index iscurrently comprised of policy information on more than 6,600D&O programs for publicly traded companies—predominately U.S.insureds—between Jan. 1, 2001 and March 31, 2011. The indexrepresents the weighted average cost of $1 million of D&Oinsurance.

According to the report, this average "rate per million" oflimit includes full D&O placements and Side-A(non-indemnifiable loss) placements. Programs with blended coverage(such as a shared limit for D&O and fiduciary liabilitycombined) are excluded from the I=index.

The pricing index is affected by clients buying higher limits orconverting traditional full (A-B-C) limits to Side-A-only limits,both of which reduce the average rate per million in a givenquarter.