The market will continue to see competition surrounding better risks as it has experienced through 2004. However, a shift in attitude among key underwriters of D&O insurance could spell fewer rate reductions for policyholders over the coming year, HRH added.

The report was authored by Fred T. Podolsky, executive vice president of HRH of New York and managing director of the executive risk solutions practice, along with Susanne Murray, executive vice president of HRH of New York and the D&O practice leader of the executive risk solutions practice.

In the report, the authors note that settlement values on some high-profile cases have been higher than expected, and one insurer?which went unnamed--has issued an internal directive to underwriters to maintain rates or walk away from the risk.

Aggressive enforcement actions on the part of regulators and attorneys general is increasing the need for "Side A" individual coverage among directors and officers to protect themselves where a corporation's liability policies are insufficient, which is affecting demand, HRH noted. These market realities present "unique underwriting challenges for D&O insurers," the authors said.

On a cautionary note, the authors said the D&O marketplace "appears increasingly fragile to excessive swings in pricing due to an expanding litigious environment, an increasing number of mega-settlements and fragile reinsurance support." They added that the aggressive premium cutting seen in 2004 would not continue.

The report points out that among the markets that insurers see as less favorable will be financial institutions, healthcare and some technology companies.

In a telephone interview with National Underwriter, Mr. Podolsky said the annual report is targeted at risk managers and general counsels making D&O insurance buying decisions to give them some guidance.

"It is difficult to tell the future," he noted, pointing out that the latter part of the D&O market in 2004 differed from HRH's forecast in its level of competition, and that pricing did not drop as much as anticipated.

Some of the reasons for the stability in the D&O market, he noted, were the opening of excess capacity, new competition, and insurer aggressiveness for some accounts.

He also noted a "dramatically" expanding need for D&O insurance as more and more middle-market, publicly-owned companies seek coverage protection in the face of increased litigation and regulation.

A link to the report from the Richmond, Va.-based insurance brokerage firm is available at www.hrh.com/HRH_D&O_Forecast.pdf.