Continued Softening In D&O Market

Continuing a downward trend, average premium levels dropped by 18 percent last year for directors and officers liability insurance, according to a new survey of 2,875 U.S. public and private companies.

"The D&O Liability 2006 Survey on Insurance Purchasing and Claims Trends" conducted by Towers Perrin--the 29th annual survey by the Stamford, Conn.-based firm--reported that the 18 percent drop in the 2006 average premium index followed a 9 percent drop in 2005 and a 10 percent drop in 2004.

The 18 percent drop relates to all survey participants. For only those participants who responded to the survey for two years running, the drop was 6.5 percent, Towers Perrin reported.

While overall premium levels were down when results were tabulated across all respondents, the report noted that small public company participants had the biggest decreases, while private firms that were also surveyed in the prior year reported a 5 percent increase in premiums.

For the public companies, those with assets less than $6 million reported a 21 percent reduction, compared with a 4 percent reduction for public companies with assets greater than $10 billion.

The report also gives information on claims trends, limits purchases, retentions and rankings of leading insurers and brokers overall or by industry class.

Among primary insurers, American International Group and Chubb were far and away the largest by premium volume--with AIG garnering nearly $100 million, or 37 percent of the $267 million of premiums tabulated from survey responses, and Chubb getting 22 percent of $59 million.

When ranked by policy count, Chubb led the list of primary insurers, followed by ACE which outranked AIG slightly. ACE had 16.6 percent of policies compared with 16.3 percent for AIG.

AIG and Chubb also led excess carriers on premium volume, but XL Insurance Company ranked first in terms of policy counts.

Top retail brokers, ranked by policy count, were ABD Insurance with 25 percent, William Gallagher Associates with 21 percent and Woodruff Sawyer with 20 percent. Marsh and Aon placed sixth and seventh. Wholesale brokers were not ranked.

In an announcement detailing survey highlights, Towers Perrin stressed an increased interest in Side A policies, which cover individual directors and officers when they are not indemnified by their organizations.

For repeat survey participants, the percentage purchasing Side A coverage grew from 8 percent in 2005 to 12 percent in 2006, Towers Perrin reported, noting that this represented a 53 percent increase. This 53 percent increase, the study said, was propelled by more Side A purchases among private and nonprofit firms.

Among 996 private companies responding in both 2006 and 2005, 39 firms, or 4 percent, bought Side A in 2006, compared with only 9, or 1 percent, in 2005.

Overall, 14 percent of companies (repeat and nonrepeat survey participants combined) reported buying a Side A-only policy in 2006.

Towers Perrin said that for the first time it is offering the 2006 Directors and Officers Liability Survey free of charge to all interested parties at http://www.towersperrin.com/tp/getwebcachedoc?webc=HRS/USA/2007/200704/DO_Survey_Report2006_040507.pdf.

The firm also offers customized Peer Group Reports, designed to help risk managers compare their D&O programs to a peer group with similar exposure characteristics. Those reports are available through Heidi Graunke at 312-201-5589 or at heidi.graunke@towersperrin.com.

Towers Perrin provides independent assessments of the reasonableness and quality of an organization's D&O insurance program given its risk profile. Information on such fee-based assessments is through Michael Turk at 203-351-5193 or michael.f.turk@towersperrin.com.