In a follow-up to the column I wrote last week about the crisis in the Director's & Officer's (D&O)marketplace, I talked to a broker this week to see if his experiences are similar to those of underwriter, Mark Simons of Starr Excess.

The broker, speaking on condition of anonymity, told a similar tale to that of Mr. Simons with a few twists.

The broker said D&O coverage has become more high profile than ever before in light of Enron, corporate governance issues and the Sarbanes-Oxley Act. In the past, insurers and directors and officers of companies tended to take D&O coverage for granted. Since the Enron debacle, underwriters are no longer willing to expose their full capacity. Therefore, brokers have to canvass the entire market to find more insurers to write the same amount of capacity they used to get from fewer insurers.

The broker is also seeing more treasurers and chief financial officers coming down with risk managers for underwriting presentations because of the depth of information underwriters are seeking before signing off on an account. According to the broker, the Bermuda market is being viewed as a stable domicile to place D&O business and is benefiting from the current D&O crisis because of all the capacity it has to offer clients. The Bermuda market has been willing to make up for the reduced D&O capacity available globally as a result of the decision made by certain United States and London insurers not to continue writing North American D&O business. However, the broker emphasised that the Bermuda market is not blindly offering all of its capacity to clients, as underwriters are judiciously offering the limits they have available.

Despite the new capacity in the market, the broker does not always see underwriters competing with each other at the moment because they are unwilling to put up their full capacity. Therefore, the new insurers are actually serving in complementary roles to the established insurers because they are filling in gaps. This allows brokers to complete D&O programmes without having to go back to clients to tell them they have gaps in their programme. The broker also stated underwriters are declining to participate on certain accounts because they have become more selective about the types of accounts they will write. Consequently, the renewal process is starting a lot earlier to ensure clients have all the data needed for an underwriter to make a decision on their accounts. Despite the renewal process beginning earlier, underwriters are waiting to the last possible moment before policies incept to release terms and conditions because they want to make sure there are no material changes to accounts prior to writing it.

Clients are complaining about the extra work required to complete the D&O underwriting process. However, they are doing whatever is required of them because the purchase of D&O coverage has become so important within corporations that it has reached board level attention. Clients want to make sure they obtain the best available coverage and if it means they have to expend extra effort to do so they do not mind. They would rather the board look favourably upon them for purchasing a comprehensive D&O programme than have to face the board's wrath if they were difficult with an underwriter and were unable to buy D&O coverage at all.

The broker echoed Marks Simons' statement that there is an increased demand for Side A coverage. In light of the recent high profile bankruptcies, clients now recognise the need to purchase separate Side A Coverage. Side A Coverage covers the directors and officers only and cannot be eroded by payments under Side B Coverage of the programme. Therefore, underwriters like to sell Side A Coverage because historically 80-90 percent of all claims fall under Side B Coverage. Under Side B Coverage, the insurer must indemnify the company where it has reimbursed directors and officers for such liability. Side B does not cover the company for its own liability. D&O insurance typically does not provide coverage for the company itself unless the company purchases `Entity Coverage'. Therefore, underwriters feel it is less risky to write Side A Coverage. Underwriters want to sell Side A coverage because they are getting "more bang for their buck". In addition, clients want to buy Side A Coverage to entice and keep key board members who may otherwise refuse to sit on boards unless they are satisfied with the amount of D&O coverage the company purchases and whether the company purchases separate Side A Coverage. Jokingly the broker said there is no one out there playing golf at the moment because everyone is hustling trying to get accounts placed. With the new players in the Bermuda marketplace, clients are seeing as many as eight underwriters in one visit to present their accounts to obtain the best terms and conditions they can. It is a time of all work and no play as there is no such thing as an easy placement at the moment. Underwriters are scrutinising all accounts more closely because none of them want to be caught out. No underwriter wants to be caught out as they were with Kmart and other accounts, which were once thought of as easy writes. It's definitely a seller's market, the underwriters are in the driving seat - how long it will last, only time will tell.

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Cathy Duffy is a Chartered Property Casualty Underwriter (CPCU) and is now a freelance writer. She is a former executive of Zurich Global Energy and has 15 years experience in the insurance industry. She writes on insurance issues in The Royal Gazette every Monday. Feedback crduffycwbda.bm