Experts offered insights on how high prices might rise when the directors and officers liability market hardens by referencing historical indexes of D&O prices by quarter.
“I don't see evidence to suggest that it would be any less than [the prior] peak in third-quarter 2002,” said Jennifer Fahey, Aon's national D&O practice director, referring to a point when prices were 163 percent higher than the first recorded date of Aon's pricing index in 2001.
That doesn't mean every firm will experience that kind of impact on the next renewal, she noted. “The reality is that it builds on a quarterly basis–changing from a soft market, to one of pricing stabilization, to small increases, to considerable increases. While it may hit an individual risk manager on a renewal as a spike, if history is a guide, the reality has not been one that would suggest that first-quarter 2009 would be a sharp upward spike.”
According to Aon's index, D&O prices have decreased in recent quarters, with an index of 1.27 for fourth-quarter 2007 (indicating prices 27 percent higher than the 2001 base date), 1.24 for first-quarter 2008, and 1.23 for second-quarter 2008.
The second-quarter 2008 figure is 53 percent lower than the 2003 peak.
Splitting the pricing data for financial institutions and non-FI risks, Aon Managing Director Brian Wanat reported during a presentation at last week's Professional Liability Underwriting Society meeting that in third-quarter 2008, non-FI prices were only 2 percent higher than 2001, while FI prices were 58 percent above the 2001 base.
Separately, Towers-Perrin, in its June report on D&O pricing trends, reported that prices in 2007 were 12 percent higher than in 2001, or 35 percent below average prices from the last peak in 2003.
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