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Are Rates Ready to Rise?

The subprime mortgage meltdown could make it harder for risk managers to purchase D&O policies, even after a downward trend in prices

By Staff Writer | Updated on October 01, 2007

While directors and officers (D&O) insurance rates have been trending steadily downward for the past three years, the easy ride that risk managers have had purchasing D&O policies may be coming to an end given the subprime mortgage meltdown. “There has been a baseline slide in D&O insurance costs of about 10% over the past few years,” remarks Lance Ewing, vice president of risk management at Harrah’s Entertainment, who attributes the softening in the D&O marketplace to the success of Sarbanes-Oxley and corporate executives looking at themselves in the mirror. “But then again just this past August, 20 class actions suits were filed,” says Ewing. “The subprime mess will affect some of the homebuilders and financial institutions. It’s whatever is the disaster du jour.” Yet, it is still a D&O buyer’s market, especially for mid-cap and small-cap companies, notes William Young, risk manager for D&E Communications Inc. of Ephrata, Penn., with $160 million in revenues. Says Young: “Small caps especially are very desirable because they fly under the radar of class action suits.”

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