Tuesday, February 24, 2009

Survey: Executive Liability Costs on the Rise

Financial services companies now pay the highest average premiums for directors and officers (D&O) liability insurance, surpassing rates paid by life sciences and technology firms, according to a forthcoming report from Carpenter Moore, a NASDAQ OMX company. This shift in D&O pricing trends accelerated in the fourth quarter of 2008 as the financial and economic crisis deepened.

Carpenter Moore's 2008 Directors & Officers Liability Insurance Peer Benchmarking Report, which allows senior executives to compare executive liability insurance pricing against their peers, identified another notable pricing shift brought on by the credit crisis and increased financial market volatility.

In the 2008 fourth quarter, only 64 percent of companies saw a decrease in their pricing, down from an average of 77 percent in the first three quarters of 2008. This marks a departure from the dominant pricing trend -- steady decreases in premiums across all industries -- that has characterized the D&O market.

The Carpenter Moore report compiles and assesses vital data for D&O policy renewals. In 2008, more than 500 publicly traded companies representing diverse industry groups participated in the study, up nearly 30 percent from 2007.

Carpenter Moore studies the cost for the first $5 million of D&O coverage, as the vast majority of public companies buy at least that level of insurance. In 2008, financial services companies paid an average premium of $147,187 for the first $5M, up 24 percent from 2007. Technology companies, which were the highest of the six broad industry sector groups surveyed in 2007, saw average premiums fall nearly 13 percent to $128,175 in 2008. The average price for the first $5 million of coverage for life sciences declined 21 percent over the past year.

Other industries tracked by Carpenter Moore are energy, commercial/manufacturing, and services, all of which saw average premiums decline in 2008.

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