Directors & Officers Liability Survey 2000 Results and Historical Trends Casualty Actuaries of Greater New York November 28, 2001 Lisa Gattel Chanzit, FCAS, MAAA, ARM
Directors & Officers Liability Survey 2000 Results and Historical Trends Casualty Actuaries of Greater New York November 28, 2001 Lisa Gattel Chanzit,
Dec 22, 2015
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Directors & Officers Liability Survey2000 Results and Historical Trends
Casualty Actuaries of Greater New York
November 28, 2001
Lisa Gattel Chanzit, FCAS, MAAA, ARM
2
Directors & Officers Liability SurveyBackground
Formerly conducted by Watson Wyatt.Conducted by Tillinghast as of 1998 Survey.
Self-selecting nonprobability sample of claim and insurance purchasing patterns.
Responses submitted primarily in second half of calendar year.
Not every participant answers every question, even though there is substantial follow-up.
Over 2,050 usable responses in 2000 Survey, including Canadian responses.
3
Directors & Officers Liability SurveyChanges for 2000
Other nonprofits reintroduced, after Health Services in 1998 and Education in 1999.
Biotechnology & Pharmaceuticals industry group.
More high technology firms (again).
More small firms (again).
More detailed analysis of coverage features and claims experience.
4
Directors & Officers Liability SurveyParticipation by Business Class
0% 10% 20% 30% 40%
Goverment & Other Nonprofit
Education
Health Services
Personal & Business Services
Construction & Real Estate
Non-Bank Financial Services
Banking
Merchandising
Utilities
Transportation & Communications
Nondurable Goods Manufacturing
Biotechnology & Pharmaceuticals
Durable Goods Manufacturing
Technology
Petroleum, Mining & Agricultural
1998 1999 2000
5
Directors & Officers Liability SurveyClaim Topics
Claim Frequency
Claimants
Claim Severity
Indemnification
Insurance Coverage
Disclosure Claims and other Shareholder Claims
6
Directors & Officers Liability SurveyClaim Frequency by Business Class
0 50 100 150 200
Government & Other Nonprofi t
Education
Health Services
Personal & Business Services
Construction & Real Estate
Non-Bank Financial Services
Banking
Merchandising
Utilities
Transportation & Communications
Manufacturing
Biotechnology & Pharmaceuticals
Technology
Petroleum, Mining & Agricultural
Frequency per Participant (%)
1998 1999 2000
7
Directors & Officers Liability SurveyClaim Frequency by Asset Size - For-Profit
0
100
200
300
400
500
1982 1984 1986 1988 1990 1992 1994 1996 1998 2000
Survey Year
Fre
qu
en
cy p
er
Part
icip
an
t (%
)
Under $100 Mil $100 Mil to $1 Bil $1 Bil to $10 Bil Over $10 Bil
8
Directors & Officers Liability SurveyClaim Frequency by Ownership
0
20
40
60
80
100
120
1984 1986 1988 1990 1992 1994 1996 1998 2000
Survey Year
Fre
qu
en
cy p
er
Part
icip
an
t (%
)
Private Public
9
Directors & Officers Liability SurveyClaim Frequency by Merger/Acq./Div. - For-Profit
0
20
40
60
80
100
120
1988 1990 1992 1994 1996 1998 2000
Survey Year
Fre
qu
en
cy p
er
Part
icip
an
t (%
)
No Recent M/A/D Recent M/A/D
10
Directors & Officers Liability SurveyClaim Frequency by After-Tax Losses - For-Profit
0
20
40
60
80
100
120
1988 1990 1992 1994 1996 1998 2000
Survey Year
Fre
qu
en
cy p
er
Part
icip
an
t (%
)
No Recent Losses Recent After-Tax Losses
11
Directors & Officers Liability SurveyClaimant Distribution - For-Profit
0%
20%
40%
60%
80%
100%
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
*
1998
1999
2000
Survey Year
Shareholders Employees Customers Other
* Adjusted
12
Directors & Officers Liability SurveyClaimant Distribution
0% 20% 40% 60% 80% 100%
Other Third Party
Government
Shareholders
Competitors /Contractors
Customers / Clients
Employees
Nonprofit Private PublicSource: 2000 D&O Liability Survey
13
Directors & Officers Liability Survey Average Severity for Closed Claims - For-Profit
0
1
2
3
4
5
6
7
8
9
1982 1984 1986 1988 1990 1992 1994 1996 1998 2000
Survey Year
Mil
lio
ns o
f U
S D
oll
ars
Defense Indemnity "Total"
Note: Excludes claims closed w/o payment.
14
Directors & Officers Liability Survey Average Indemnity Severity by Business Class
0
2
4
6
8
10
12
14
1990 1992 1994 1996 1998 2000
Survey Year
Mil
lio
ns o
f U
S D
oll
ars
Tech/Biotech Utilities Merchandising Manufacturing Banking
Note: Excludes claims closed w/o payment.
15
Directors & Officers Liability Survey Average Defense Severity by Business Class
0.0
0.5
1.0
1.5
2.0
2.5
3.0
1990 1992 1994 1996 1998 2000
Survey Year
Mil
lio
ns o
f U
S D
oll
ars
Tech/Biotech Utilities Merchandising Manufacturing Banking
Note: Excludes claims closed w/o payment.
16
Directors & Officers Liability Survey Average Indemnity Severity by Asset Size
0
2
4
6
8
10
12
1990 1992 1994 1996 1998 2000
Survey Year
Mil
lio
ns o
f U
S D
oll
ars
$100 Mil to $1 Bil Over $1 Bil
Note: For-profit only. Excludes claims closed w/o payment.
17
Directors & Officers Liability Survey Average Defense Severity by Asset Size
0.0
0.5
1.0
1.5
2.0
2.5
3.0
1990 1992 1994 1996 1998 2000
Survey Year
Mil
lio
ns o
f U
S D
oll
ars
$100 Mil to $1 Bil Over $1 Bil
Note: For-profit only. Excludes claims closed w/o payment.
18
Directors & Officers Liability Survey Average Indemnity Severity by Claimant
0
2
4
6
8
10
12
1990 1992 1994 1996 1998 2000
Survey Year
Mil
lio
ns o
f U
S D
oll
ars
Shareholders Employees Competitors Customers
Note: Excludes claims closed w/o payment
19
Directors & Officers Liability Survey Average Defense Severity by Claimant
0.0
0.5
1.0
1.5
2.0
2.5
3.0
1990 1992 1994 1996 1998 2000
Survey Year
Mil
lio
ns o
f U
S D
oll
ars
Shareholders Employees Competitors Customers
Note: Excludes claims closed w/o payment
20
Directors & Officers Liability Survey Indemnification by Firm for D&O Claims
No Indemnification
4%
Partial Indemnification
7%
Undecided19%
Full Indemnification
70%
Source: 2000 D&O Liability Survey Note: Excludes claims where the entity is the only defendant
21
Directors & Officers Liability SurveyInsurance Coverage of D&O Claims - Closed
0% 20% 40% 60%
Claim Amount LessThan Deductible
Claim OutsidePolicy
No Insurance
Partial Coverage
Full Coverage
1998 1999 2000Note: Excludes uncertain responses
22
Directors & Officers Liability Survey Disclosure Claim Incidence
0%
5%
10%
15%
20%
25%
30%
35%
40%
1988 1990 1992 1994 1996 1998 2000
Survey Year
Disclosure Claim Incidence among Shareholder Claims
23
Directors & Officers Liability Survey Shareholder Claim “Win” Ratios
Number ofClaims Closed
Number withNo Indemnity*
“Win”Ratio
Claims w/ Disclosure Issue 42 16 38%
Claims w/o Disclosure Issue 86 51 59%
All Shareholder Claims 128 67 52%
* Note that substantial legal costs may have been incurred.
Source: 2000 D&O Liability Survey
24
Directors & Officers Liability SurveyPrevalence by Business Class
0% 20% 40% 60% 80% 100%
Government & Other Nonprofi t
Education
Health Services
Personal & Business Services
Construction & Real Estate
Non-Bank Financial Services
Banking
Merchandising
Utilities
Transportation & Communications
Manufacturing
Biotechnology & Pharmaceuticals
Technology
Petroleum, Mining & Agricultural
1998 1999 2000
25
Directors & Officers Liability SurveyPrevalence by Asset Size - For-Profit
80% 85% 90% 95% 100%
Under $50 Million
$50 - 100 Million
$100 - 400 Million
$400 MM - 1 Billion
$1 - 2 Billion
$2 - 5 Billion
$5 - 10 Billion
Over $10 Billion
1998 1999 2000
26
Directors & Officers Liability SurveyPrevalence by Full-Time Employees
0% 20% 40% 60% 80% 100%
Under 250
251 - 1,000
1,001 - 2,500
2,501 - 5,000
5,001 - 10,000
Over 10,000
1998 1999 2000
27
Directors & Officers Liability SurveyPrevalence by Ownership - For-Profit
50%
60%
70%
80%
90%
100%
1984 1986 1988 1990 1992 1994 1996 1998 2000
Pre
vale
nce
Private Public All
28
Directors & Officers Liability SurveyEntity Coverage Prevalence by Asset Size
0% 20% 40% 60% 80% 100%
Under $400 Mil
$400 Mil - $1 Bil
$1 - $2 Bil
$2 - $5 Bil
Over $5 Bil
1998 1999 2000
29
Directors & Officers Liability SurveyMain Reason for Not Purchasing D&O Insurance
0% 20% 40% 60%
Other
Unable to Obtain
Cost Too High
Coverage TooLimited
See No Need for It
Advice of Counsel
1998 1999 2000
30
Directors & Officers Liability SurveyD&O Premium Index - U.S., For-Profit Only
0
100
200
300
400
500
600
700
800
900
1974 1977 1980 1983 1986 1989 1992 1995 1998 2001
Median Average
31
Directors & Officers Liability SurveyFull D&O Limits Capacity (Millions)
0
400
800
1200
1600
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
32
Directors & Officers Liability SurveyAverage Total Limit by Asset Size - For-Profit
0
20
40
60
80
1984 1986 1988 1990 1992 1994 1996 1998 2000
Lim
it (
$m
illi
on
)
Under 100 Mil $100 - $400 Mil $400 Mil - $1 Bil$1 - $2 Bil Over $2 Bil
33
Directors & Officers Liability SurveyAverage Deductible by Asset Size - For-Profit
0
1
2
3
4
1984 1986 1988 1990 1992 1994 1996 1998 2000
Ded
ucti
ble
($
mil
lio
n)
Under $400 Mil $400 Mil - $1 Bil $1 - $2 Bil $2 - $5 Bil Over $5 Bil
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