Financial Institutions’ Directors and Officers Insurance Rates Jump

Directors’ and officers’ liability insurance costs for financial institutions significantly increased in the fourth quarter of 2007, according to a D&O pricing index released by Aon Corp.

Authored by Aon Financial Services Group, the index tracks changes in D&O premium costs relative to the base year of 2001.

Measured on a price per million basis, D&O insurance costs for banks and securities firms increased 18.66 percent from Q4 2006 to Q4 2007. Comparatively, firms operating in industries outside the financial services sector experienced an 18.99 percent decrease in D&O costs during the same time period.

Since 2001, industries across the board have experienced similar decreases in average D&O pricing. Now, pricing for financial institutions is increasing at a time when the rest of the market is experiencing price decreases.

The index explains these findings by pointing to the fact that financial institutions were affected particularly hard by the subprime crisis during the last three months of 2007. In that timeframe, the S&P 500 Financial Sector saw a 21.62 percent drop(1) in the value of a broad index of financial institutions. As a result, D&O underwriters associated larger amounts of risk with the directors and officers of these firms and thus increased D&O costs for the financial services sector.

Source: Aon

http://www.aon.com