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Aon: Stabilizing Economy Eases D&O Liability Claims and Pricing

Source: Aon

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Posted on 18 Dec 2009

Pricing for directors' and officers' liability insurance decreased 2.7 percent in the third quarter of 2009 compared to the rates seen in the third quarter of 2008, according to Aon's Q3 Quarterly D&O Pricing Index. The Pricing Index is designed to provide directors, officers and risk managers of publicly traded corporations with a better understanding of current and historic D&O pricing conditions.

Following double-digit increases in each of the previous four quarters, D&O pricing for the Standard & Poor's financial institutions sector, which includes banks, diversified financials, insurance and real estate, increased by only 3.2 percent in Q3 '09, reflecting a 39 percent drop from its highest point in 2003. According to the Index, D&O pricing for all remaining S&P industry sectors was down an average of 4.9 percent in Q3 '09.

D&O claims and pricing tend to move in the opposite direction of the financial markets. When a company's stock is doing well, shareholders are typically content. Thus, as the stock market has recovered this year, the frequency of claims has slowed. In the first three quarters of 2009, there were 130 federal securities class action lawsuits filed, 49 related to the credit crisis. This marks a 20 percent decrease from the 163 filings seen during the same period in 2008.

"The decreasing number of claims may signal an end to the litigation explosion for financial services firms," said Mike Rice, national practice leader of Aon's Financial Services Group and author of the Quarterly D&O Pricing Index. "In 2010, we expect the market for D&O coverage to continue to soften for financial institutions as well as most of the other industry sectors."


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