D&O EXCESS LIMITS UP BUT PREMIUMS DOWN

Directors and officers liability insurance capacity leveled off at about $1.5 billion in 2005, about where it was in 2004, while coverage restrictions continued to ease, according to D&O Liability 2005 Survey conducted by the Tillinghast business of Towers Perrin.

The same survey reports that D&O liability insurance premiums dropped another 9 percent in 2005 after dropping 10 percent in 2004. The authors predict that by the end of 2006, premium decreases will flatten, and the amount of D&O coverage insurers write will start to decline.

Similar to 2004, competition remains fierce in excess layers for large public companies, where premiums dropped 10 percent in the excess layer and 8 percent in the primary layer. The increase in average total policy limits was 9 percent, while the increase in average primary limits and average excess limits was 2 percent and 11 percent, respectively, between 2004 and 2005.

“Not surprisingly, the largest increase in limits was in the excess layer,” observes Michael Turk, senior consultant. “However, premium decreases of a similar magnitude were reported in both the primary and excess layers. Given the increase in excess limits and increasing claim severity, it seems counterintuitive that there is a decrease in the excess layer premium.”

The survey found that the average policy limit for U.S. for-profit 2005 companies was $14.3 million compared to $13.6 million in 2004, and that 63 percent of U.S. participants reported no change in their deductibles or retentions.