Mercator Risk Services

Directors and Officers Liability

Market

The market for Directors & Officers Insurance (D&O) is segmented, and the competitive conditions in each segment vary. The primary segments are:

In all segments pricing and underwriting is driven by claims frequency and severity, although there is typically a lag between changes in claim activity and pricing.

A report by Tillinghast in 2005 concluded that while claim activity against corporate directors and officers continued to increase, pricing softened. According to the report, claim frequency increased 30 percent from 2004 to 2005 while claim susceptibility increased 6 percent among repeat participants in the survey. The D&O Premium Index dropped 9 percent in 2005, after dropping 10 percent the previous year. The index represents the average D&O premium of a typical U.S. for-profit company, although the index may not be representative of the private company market.

Public Companies

The public company D&O market provides coverage to corporations whose stock is registered with the SEC and is traded on one of the exchanges in the United States. This market is characterized by high (but softening) pricing, thorough underwriting and large accounts. The principal exposure in these D&O policies is securities coverage. One sub-segment is for initial public offerings (IPOs), a segment that has cooled markedly since the busy internet bubble.

Private Corporations

The private company D&O market provides coverage to corporations whose stock is not registered and who have limited numbers of shareholders. Many of the shareholders are considered insiders, or management, or are otherwise knowledgeable about the companies operations. Therefore securities exposures are significantly less than with public companies. Exposures include securities claims, employment claims and a range of other sources of claims.

Non-Profit Organizations

Non-profit organizations represent a completely different type of segment within the D&O market. There are no stockholders, but directors and officers have a duty to the organization and its public interest purpose. The market is characterized by broad and inexpensive coverage, with the primary exposure coming from employment related claims.

Specialty or Hard to Place Accounts

There are many organizations which fall outside the three primary segments noted above. These include specialty organizations which need customized coverage. Examples include investment-related organizations, quasi-governmental institutions, large healthcare organizations and family trusts. In addition, many organizations can run into difficulties which require a different underwriting approach, such as adverse claim experience and financial difficulties.

There are a set of markets that specialize in writing these specialty accounts which Mercator Risk Services can work with to provide your client with D&O coverage.

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