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Aon and NASDAQ OMX Report Reveals Improved Governance, Ample Capacity Driving Soft Executive Liability Market

Source: Aon

Posted on 22 Sep 2010

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Improved corporate governance, fewer securities class-action lawsuits and ample capacity are driving the soft directors' and officers' liability market, according to the annual D&O Peer Benchmarking Report presented by NASDAQ OMX and Aon.

The continued softening of the D&O insurance market is welcomed by major public corporations as they strive to reduce costs and improve bottom line performance. NASDAQ OMX, the world's largest exchange company, released the report today in association with Aon Risk Solutions, the global risk management business of Aon Corporation (NYSE: AON).

Nearly 600 NASDAQ OMX companies from 46 states and 18 countries participated in the survey. According to the report, these organizations purchased more than $21 billion in limits and $370 million in premiums, and owned 2,245 policies in 2009. The coverage was placed through 62 different insurance brokers.

“Public companies are under tremendous pressure to trim expenses, and this benchmarking analysis serves as an eye opener for our member companies,” said Demetrios Skalkotos, senior vice president of NASDAQ OMX Global Corporate Solutions. "Knowing how much D&O coverage your peers are buying is helpful, but it can be even more powerful to know how much they are paying for it."

For the majority of S&P companies, D&O pricing declined in 2009. According to the report, even financial institutions, which were the only industry group in last year’s survey to see an increase, experienced a decline.

The D&O Peer Benchmarking Report outlines six best practices for organizations to follow when looking to purchase or analyze their coverage:

1. Examine the D&O policy to determine corporate executive indemnification provisions

2. Question any generic worldwide coverage language in the D&O policy; it may be inadequate

3. Recognize what triggers a claim under the D&O policy

4. Scrutinize the limits of the excess policies

5. Understand how coverage under the D&O policy is affected by the wrongful acts of others

6. Know how the organization and the directors and officers are protected during a financial crisis

The report notes that only 178 U.S. federal securities class-action lawsuits were filed in 2009, reflecting a decrease of 20 percent from 2008. Outside the U.S., 293 actions were brought against directors and officers in more than 50 countries.

“We are starting to see U.S. financial regulatory agencies become more active and aggressive as the SEC makes reinvigorating its enforcement program a top priority,” said Ralph Semeraro, managing director of Aon Risk Solutions' Financial Services Group. “Now more than ever, it is imperative for organizations to have solid directors’ and officers’ liability coverage in place.”

“The D&O peer survey provides comprehensive, detailed buying data in a clear, concise manner that allows our board to make an informed D&O purchase that is appropriate for our company's needs," said Dorrance Lamb, chief financial officer of Performance Technologies (NASDAQ: PTIX).

Download a two-page summary of the 2010 NASDAQ OMX/Aon Directors’ and Officers’ Liability Insurance Peer Benchmarking Report at