The average premium for D&O liability insurance more than doubled between the fourth quarter of 2000 and the fourth quarter of 2003--a rate of increase much sharper than for the overall property-casualty insurance market. But the trend reversed course in the first quarter of 2004 and has been falling steadily since, Advisen noted.

Capacity withdrawn from hurricane-exposed business and redeployed to other lines and regions, plus new capacity generated by 2006 profits and more than $30 billion in new investments in the industry, increased downward pressure on rates in 2006 for business other than hurricane-exposed property--including D&O, said Advisen.

"We are now three years into the softening D&O market and can clearly see the extenuating factors that are contributing to a perfect storm for pricing declines," said David Bradford, editor-in-chief at Advisen and author of the briefing.

Since the corporate governance scandals of the early 2000s, shareholder activism and government oversight have created much greater transparency in corporate management, "and when you combine that with the current capital environment in the industry, you have pricing conditions that may threaten to free-fall," Mr. Bradford warned.

Securities class-action suits remain the principal source of D&O losses for public companies, but the number of suits filed in 2006 fell sharply--due in part to greater transparency, Advisen reported.

"This kind of visibility into fluid market conditions was unavailable to insurance professionals even just a few years ago," said Mr. Bradford. "But now we can have greater insight into the past, which allows us to better understand the future and be prepared for, rather than react to, those market dynamics."