Directors' and officers' (D&O) liability insurance costs for financial institutions significantly increased in the fourth quarter 2007, according to a D&O pricing index released yesterday by Aon Corporation.

The index, which was written by Aon Financial Services Group, 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 rose 18.66 percent from the fourth quarter in 2006 to the respective period last year. 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 declines in price.

The index points to the fact that financial institutions were impacted particularly hard by the sub-prime crisis during the last three months of 2007. In that timeframe, the Standard & Poor's 500 Financial Sector saw a 21.62 percent drop 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.

"On behalf of our clients - financial institutions in particular - we are continuing to closely monitor how D&O underwriters are responding to the sub-prime crisis," said Mike Rice, managing director of Aon Financial Services Group and an author of the index. "Aon will continue to work tirelessly with underwriters in the coming year to provide clients in all industries with D&O insurance at affordable costs."

The index is designed as a hands-on tool to provide the directors, officers and risk managers of Fortune 500 firms with a better understanding of current and historical pricing conditions for directors' and officers' liability insurance. It is produced on a quarterly basis.