D&O Trends Threaten Profits.The average size of a directors-and-officers liability claim awarded to shareholders rose to $8.67 million, the highest ever, according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. Tillinghast-Towers Perrin's 1999 Directors and Officers Liability Survey. But overall pricing still declined for D&O liability insurance for the fourth consecutive year. The trend is similar for D&O claims from employees, which reported an average cost of $306,000 in 1999, up from $287,000, said Mark Larsen, a Tillinghast-Towers Perrin consultant and the survey's author. High-tech and biotech bi·o·tech n. Informal Biotechnology. biotech Noun short for biotechnology Noun 1. companies with recent initial public offerings ran against the overall downward trend in D&O pricing, with some posting substantial premium increases. "This market remains very competitive, with reinsurance The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract. and primary insurance capacity growing and policy language generally less restrictive," Larsen said. While premiums decreased an average of 7% for comparable coverage, shareholder D&O claim costs rose $1.51 million to $8.67 million, with the average indemnity payment for closed shareholder claims--excluding those closed with no payment-up from $7.16 million in last year's survey. Shareholder and employee claim-cost trends are crucial because they are the most frequent sources of D&O claims. Shareholder claims are most common for publicly traded companies publicly traded company A company whose shares of common stock are held by the public and are available for purchase by investors. The shares of publicly traded firms are bought and sold on the organized exchanges or in the over-the-counter market. , and employee claims are most frequent for private companies and nonprofit organizations Nonprofit Organization An association that is given tax-free status. Donations to a non-profit organization are often tax deductible as well. Notes: Examples of non-profit organizations are charities, hospitals and schools. . If these trends continue, "we could soon see adverse loss ratios and shrinking insurer profit margins," Larsen said. "Despite the dearth of Y2K See Y2K problem and Y2K compliant. Y2K - Year 2000 claims to date, this type of liability has several more years to its tail and could result in significant losses for D&O insurers." According to U.S. survey respondents In the context of marketing research, a representative sample drawn from a larger population of people from whom information is collected and used to develop or confirm marketing strategy. , employee claimants most frequently cited employment discrimination, which accounted for 27% of all D&O claims. For shareholder claimants, issues related to financial disclosure were most common and accounted for more than 7% of all D&O claims. The survey included more than 1,400 responses. Of the 1,325 U.S. participants, 56% were publicly traded companies and slightly more than half had experienced a merger, acquisition or divestiture The breakup of AT&T. By federal court order, AT&T divested itself on January 1, 1984 of its 23 operating companies, which became known as the Regional Bell Operating Companies (RBOCs). in the past five years.
U.S. Market Shares For Primary D&O Coverage
Policy Premium
Count Volume
Chubb Exec. Risk 23% 23%
AIG 23% 29%
Lloyd's of London 21% 14%
Admiral 4% 2%
Great American 4% 2%
Reliance 3% 2%
Aegis 2% 7%
CNA 2% 4%
Genesis 2% 2%
Zurich 2% 1%
Source: Tillinghast-Towers Perrin
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