|  | | 2006 News and Press Releases | | |
HEADLINE NEWS:
Securities Class Actions Plummet As Derivative Suits Take Center Stage In '06; Insurers And Brokers Are Fielding More Questions About D&O Coverage
Mark E. Ruquet
National Underwriter. November 6, 2006
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EXCERPT: As directors and officers liability insurance prices and securities class action filings both decline, potential insurer profits will hinge on severity and the final disposition of a recent wave of derivative actions, experts say. Driving downward pricing trends in this market is the apparent profitability insurers experienced in 2005, but some observers believe the market may be bottoming out as far as pricing is concerned.
In one report, Greg Spore, senior vice president with Marsh's FINPRO practice, speaking recently during the firm's "The New Reality of Risk" Webcast series, said capacity is abundant and stable, with premiums falling and program enhancements being granted to insureds primarily over rescission issues. Frequency decreased, with fewer claims in 2005, but severity was up, he said. A recent report from the Council of Insurance Agents & Brokers said rates for D&O liability insurance were down close to 3 percent in the third quarter, which is consistent with the previously reported three quarters of the survey. Carol Zacharias, senior vice president and counsel for ACE Professional Risk, based in Philadelphia, noted that the frequency of securities class actions, which traditionally drive D&O insurance claims, has continued to drop in 2006. Ms. Zacharias, who recently authored a report entitled "Trends in Securities Class Action Litigation and Directors and Officers Liability Insurance," said that the frequency of securities class action filings hit an average of 193 a year between 1996 and 2005, citing figures from the PricewaterhouseCoopers "2005 Securities Litigation Study." She projected that there would be between 110 and 120 suits this year, down from 168 last year. (Editor's Note: The frequency average of 193 class actions since 1996 excludes IPO allocation, mutual fund, and analyst cases.) A major reason for the decrease, she noted, is that a number of civil cases filed today, which involve allegations related to the awarding of stock options to executives, are filed as derivative cases rather than securities class actions. Currently, there are ongoing investigations into companies backdating stock option compensation awards. The accusation is that stock options issued to executives were backdated to a time when the price was lower. The executive profits from selling the stock at a higher price. |
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