He also told underwriters and brokers gathered yesterday at the Professional Liability Underwriting Society here to pay attention to the lessons of the past, urging them to remain vigilant about potential changes in a currently calm D&O landscape.

Mr. Degnan, during a luncheon speech, echoed speakers at earlier sessions who pointed to a good economy, a less volatile stock market, several favorable court rulings and the positive consequences of the Sarbanes-Oxley Act as drivers of a D&O environment that seems to be a "perfect calm" after the "perfect storm" that D&O insurers found themselves caught up in earlier in the decade.

He told his listeners to guard against the tendency to invoke easy descriptors like "perfect storm" and "perfect calm." Mr. Degnan noted that even the improving case filing numbers being reported now are suspect when examined in the context of a declining number of public companies.

"We should not overlook ongoing merger and acquisition activity in the last decade, not to mention an increasing number of going-private transactions," he said, noting that the number of public companies dropped 30 percent from 1997 to 2006--from roughly 9,300 to 6,500.

The frequency of securities suits adjusted for this consolidation is very close to the level of a decade ago, he said.

Mr. Degnan and others speaking at the conference noted that cases involving allegations of options backdating have been filed as derivative suits, rather than class actions, because they typically haven't fueled massive stock drops, and that backdating cases now number somewhere between 130 and 140.

These backdating cases are excluded from the January publication of securities class action statistics by the Stanford Law School Securities Class Action Clearinghouse (a joint project between Stanford Law School and Cornerstone Research), which announced the often-cited 38 percent decline in securities class actions, he said.

In the past, the report similarly excluded IPO cases in one year, equity analysts' cases in another and mutual fund market timing cases in yet another.

Comparing this type of analysis to the "old insurance industry trick" of "but-for" earnings reports (referring to reports by insurers that exclude the impacts of asbestos charges or natural catastrophes to present more favorable results to investors), he said, "We have to be skeptical of securities claims data."

"At some point, we need to accept that systematic events have become the norm."

Mr. Degnan also commented that while derivative claims have historically been viewed as lacking the severity potential of securities class actions, an increase in the number of A-side only policies being written by D&O carriers heightens the impact of these cases. A-side policies specifically provide coverage in situations where a company can't indemnify directors and officers--most notably covering derivative suits.

During his presentation, Mr. Degnan also noted that a factor depressing the number of class actions in 2006 was the May 2006 indictment of Milberg Weiss, one of the most active plaintiffs firms in filing securities class actions.

Mr. Degnan sounded a final note of caution, reminding PLUS attendees that the D&O market was a "picture of health" in 1997 before it went into decline.

The industry responded then "with a race to the bottom" in D&O pricing and abandoned good sense in the negotiation of policy terms, he said, urging discipline and vigilance.