There is no shortage of issues causing instability in the public directors and officers liability arena, leading underwriters to believe that 2011 will be an active year in this segment.

Some of these issues include:

• Securities class action lawsuits
• Financial reform
• Pending litigation from the subprime crisis
• Fallout from investments in Chinese company stocks
• Increased claims from mergers and acquisitions

Just this week, Advisen came out with its latest quarterly review, which counted 1,196 securities lawsuits filed in 2010, topping the previous record of 1,171 from 2009. The report also stated that "30 percent of all securities suits filed named financial firms or their directors and officers".

These problems, as well as other potential ones, haven't slowed down carriers from competing hard in this class.

"You might think carriers would be becoming more careful with all the uncertainty, but in fact carriers are still quite competitive," says Kevin LaCroix, partner of Oakbridge Insurance Services in Beachwood, Ohio, and author of the blog, "The D&O Diary".

"There are new entrants and players that are seeking to expand their market share in the public company space. As a result, for most companies it is still a buyer's market. Most stable companies outside the financial sector can still find broad terms and conditions at attractive prices."

This is a benefit to insureds, especially during these tumultuous times.

"Most public companies buy D&O coverage," says LaCroix. "This isn't a market you have to convince people to buy. They know they need it because they are a publicly traded company. The real question is how much do they buy?"

The answer appears to be that they are buying more. Instead of reducing coverage, public companies have been buying increased limits, according to underwriters, especially for Side A difference-in-conditions (DIC) policies, which personally indemnify individual directors and officers. Companies have also been increasing their defense cost limits.

"Any time there is an economic downturn, directors and officers are very concerned," says Peter McKenna, president of Chartis Executive Liability's Public Account Group. "With that being said, they are not cutting back on purchasing the product, they are increasing their limit profiles. There has been a shift over the last several years with more companies purchasing Side A."

If demand for public D&O coverage has gone down at all, says McKenna, it is because the buying populous has shrunk due to bankruptcies and fewer start-ups, which could change if the economy recovers.

"If [the economy] does recover we may see more companies going public, thus increasing the potential number of companies to insure." says Joe Haltman, senior vice president of Monitor Liability Managers' D&O Insurance. "If it doesn't, and capital markets continue not to lend, we will see more bankruptcy filings thus decreasing the number of publicly traded companies available to insure."

Underwriters Wary of Financial Institutions

D&O coverage is still hard to obtain for commercial banks and companies going through financial turmoil.

"Beginning in 2008 and continuing now, companies in financial service industries, residential lending and real estate business are perceived as riskier and it is challenging for them," says LaCroix.

LaCroix says that the number of bank failures has grown tremendously in the last three years and that number is continuing to rise. In addition, carriers are seeing significant claims activity because of these failures.

"Everyone who is active in the commercial space is concerned they are exposed to lawsuits," he says. "Commercial banks in general are facing a less attractive environment because loss ratios show they are vulnerable to claims. They will find it hard to get favorable terms and conditions."

Although Monitor does not write financial institutions, Haltman says there are still more issues ahead for this segment.

"There is a big back log of FDIC (Federal Deposit Insurance Corp.) and financial institution litigation that takes a while to materialize. The insurers in this segment won't know the amount of the payments for a few years out."

Chartis is one of a handful of insurers in the public D&O segment that will write financial institutions. McKenna, who does not personally write this class for the company, says the recurrent volatility has historically led to fewer insurers pursuing the segment relative to commercial D&O.

However, McKenna has seen more competition in this class lately as some carriers' concerns over the credit crisis have lessened.

"While Chartis maintains its appetite for financial institutions accounts, due to regulatory uncertainty, enforcement initiatives and the Wall Street vs. Main Street popular sentiment, we continue to believe that caution is warranted and risk selection and pricing remain key," he says.

Staying Ahead of the Competition

Chartis launched its Executive Edge product in May for directors and officers of public companies. It provides enhanced personal protection for directors and officers when companies refuse to provide indemnification to their executives, as well as other features.

McKenna says the company has the largest market share on the public side and being innovative is the key to leading the industry.

"There are only certain markets that are able to do [what we do]," he says. "It doesn't eliminate the competition in the market, but it shrinks it a little bit."

Monitor Liability Managers launched a new public D&O policy form in 2009 in response to changes in the market. The company also offers an enhanced Side A DIC policy and excess policy. Haltman says their coverage was developed with quality, not price in mind.

"The most difficult thing we see from a carriers' standpoint is explaining to the insured the lack of price stability and the volatile market swings," says Haltman. "[Carriers] over compete and correct, then it's hard for the insured to budget for their insurance costs."

Because D&O is a rapidly shifting marketplace with constant changes, it is not something agents can do part time, says LaCroix. Those agents that can't adequately show the risk exposure to their client will lose an account to one of the many competitors out there.

"Either make sure that you have the necessary level of expertise, or get someone who does and get them on your account," he says.