NEW YORK (Bloomberg) — When Performance Technologies Inc. renewed its insurance policy protecting against shareholder lawsuits, the software company paid less than it did before Enron Corp.’s collapse in 2001.American International Group Inc. and another insurer cut Performance’s annual premiums to $160,000, about half of their peak of $314,000 in 2003, said Dorrance Lamb, chief financial officer of the Rochester, New York-based maker of programmes and switches for the telecommunications industry. Bidding was so aggressive that two smaller competitors offered the same policy for $95,000.

AIG, the largest US insurer of corporate boards, and rivals have cut prices as the perception of risk from scandals such as Enron fades with new accountability standards. In 2006, rates to cover directors and officers who may be sued for negligence or misleading statements fell to the lowest level in five years, according to a survey of 2,875 insurance buyers to be released next week by Tillinghast, a consultant in Stamford, Connecticut.

“I’m really worried about it coming back to bite them,” said Robert Haines, a New York-based analyst at CreditSights Inc. who has a “marketweight” rating on the debt of AIG and an “underweight” rating on Chubb Corp., AIG’s biggest rival in “D&O.” “There’s potential fallout from the options backdating scandal and subprime lenders, and still pricing is going down.”

Ten of the biggest investor suits since 2000, including those linked to frauds such as Enron, cost D&O insurers more than $2 billion, said Dan Bailey, a lawyer in Columbus, Ohio, who helps insurers in coverage disputes. New risks to insurers include mortgage lenders stung by defaults and companies that may have backdated stock options granted to executives in order to inflate their value.

“The number of claims, the number of securities lawsuits, have been on a downward trend,” said Keith Martinsen, an insurance broker at San Francisco-based Carpenter Moore, a unit of Nasdaq Stock Market Inc. that helped Performance Technologies buy its coverage. “The question starts becoming: At what point do the rates get too low?”

D&O is trickier to price than property or car insurance because claims often surface years after policies are sold. The Center for Financial Research and Analysis found insurers ended up losing money on coverage sold from 1998 to 2002 and said reported profits from 2003 to 2005 aren’t certain because claims may still arise.

Insurers flock to high-priced markets only to overcrowd them and drive down rates. Premiums that surged 72 percent from 2001 to 2003 fell during the past three years, according to Tillinghast, a unit of Towers Perrin that publishes an annual index based on the survey. New York-based AIG, Chubb, of Warren, New Jersey, and dozens of other D&O insurers collected $7.5 billion to $8 billion in 2006, estimates Fitch Ratings.

“We’re our own worst enemies,” said Paul Ingrey, chairman of Arch Capital Group Ltd., a Bermuda-based insurer that sells D&O. “Memories are short.”

Executives at AIG say they haven’t forgotten. The company’s average D&O rate was still higher last year than in 2002, said spokesman Chris Winans, estimating a “low double-digit” percentage higher. AIG said it has even lost some smaller accounts, where competition is fiercest, because it refused to match rivals offering discounts of 30 percent to 35 percent.

“If we thought the rate was still adequate, we would compete harder for the account,” said John Doyle, chief executive officer of AIG’s National Union Fire Insurance Co., where rate reductions for companies with less than $500 million of annual revenue average about 10 percent. “We’re remaining disciplined.”

Doyle declined to identify the most aggressive rivals. Phil Norton, a broker at Arthur J. Gallagher & Co. in Itasca, Illinois, said Ace Ltd., XL Capital Ltd. and Beazley Group Plc are among insurers outbidding AIG as well as Chubb.

Robert Grieves, a spokesman at Bermuda-based Ace, and Christine Weirsky, a spokeswoman at Bermuda-based XL, declined to comment, as did Susan Meggitt of Beazley, a Lloyd’s of London insurer.

The number of shareholder class-action suits filed against US companies in 2006 was the lowest in at least 11 years as the Sarbanes-Oxley Act of 2002 held chief executive officers responsible for accurate financial reports, according to Cornerstone Research in Menlo Park, California. The Standard & Poor’s 500 Index advanced for a fourth year in 2006.

Performance Technologies, with about $50 million in annual revenue, hasn’t had a “significant” D&O claim, Lamb said.

Neither has American Reprographics Co., a document manager that got a 16 percent discount — its second rate reduction since going public in 2005 — when it renewed $30 million of D&O coverage in February. Chubb has been sharing the policy with two smaller insurers.

“We were happy,” said Joe Abeyesinhe, a vice president of purchasing for Glendale, California-based American Reprographics, which had $592 million in revenue last year. “There’s a glut of D&O capacity out there.”

Insurers are competing on coverage terms and conditions too. When Weyerhaeuser Co., the world’s biggest lumber producer, renewed with AIG in January, the policy made it harder to reject a claim in addition to costing 5 percent less than the year before, said John Lambdin, insurance director for the Federal Way, Washington-based company.

“It’s a buyer’s market,” said Ann Longmore, a New York- based broker for Willis Group Holdings Ltd. “A couple more years and you’ll be getting it free with a toaster oven.”