The cost of settling class actions against directors and officers hit an unprecedented level last year even as insurance prices for the group continued on a downward trend, experts said.
A report issued by Cornerstone Research said the total value of cases settled during 2005 grew to an all-time high of $3.5 billion, surpassing last year's figure of $2.9 billion by more than 17 percent.
And that figure excludes the more than $13 billion in settlements reached with Enron and WorldCom last year following their record bankruptcies.
Dr. Laura Simmons, a principal in Washington-based Cornerstone Research, said that what was significant was the inordinately large single-year increase in the median settlement amount.
Peter Taffae, managing director for Los Angeles-based Eperils, said the directors and officers premiums are still declining as they have for the past couple of years.
"This is crazy, what is going on. It is just not logical," Mr. Taffae said. "No D&O underwriter has ever written a policy with the idea that there might be a claim some day."
The only break in this pattern came following the World Trade Center attacks and the Enron and WorldCom collapses in the fall of 2001 when prices spiked sharply. "This is what it took for some logical thinking," he said.
"Some of the big players, who have some big cat losses, are getting a lot of pressure to bring in more premium," he said.
But he added that recent tightening of reinsurance treaty conditions covering D&O claims could provide the medicine to bring more rational pricing to the line.
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