Bermuda's directors and officers (D&O) liability insurance market, for the first time, is facing competition from US insurers, the national manager of Arthur J. Gallagher & Company's professional lines division, said yesterday at a major D&O conference.

US domestic insurers are now imitating innovations created by Bermuda D&O writers, said Mr. Philip Blais, speaking at the 26 Watson Wyatt Symposium being held at Marriott's Castle Harbour.

"With competition increasing, major carriers such as National Union and Chubb are particularly aggressive in pursuit of new business.

"The emergence of CNA and Zurich as key primary players, the offshore alternative funding programmes, the Aetna D&O side only contract, and new carriers is beginning to take on a lot of attention in the marketplace,'' he said., AIG is another US domestic company competing with the Bermuda D&O market, he added.

ACE Ltd., Corporate Officers and Directors Assurance Ltd. (CODA), a subsidiary of ACE, X.L. Insurance Company Ltd., Chubb Atlantic Indemnity Ltd., a subsidiary of Chubb Corp., Bankers Insurance Company Ltd. (BICL) and Starr Excess Liability Insurance Company Ltd. make up the Bermuda D&O market.

During the D&O crisis of the mid-1980s, Bermuda insurers filled the demand for high excess limits, said Mr. Blais.

Bermuda companies also provided "value added'' services, he said. Companies are now saying they want a new D&O package with additional value added, he said.

The US domestic market is attempting to expand premium volume via increased capacity utilising old concepts, he said.

"To stay on the cutting edge, Bermuda's D&O market needs to make another adjustment,'' he said.

Bermuda's D&O insurers can, and are, looking at this as a huge opportunity, he said.

Bermuda is better positioned to provide new types of products compared to the US or London, in part, because the Island's bureaucratic structure is less onerous while Lloyd's is experiencing difficulties, he said.

And unless there is a new US domestic carrier, that market will be slow to respond, he added.

"We see Bermuda positioned to take advantage of a big opportunity to provide a new value added package to the high-end sophisticated purchasers of insurance; the major multi-national companies or groups of major operations,'' he said.

And smaller individual companies, which may not utilise companies like ACE and XL, could become new customers if they form groups of insureds.

"Ten entities could form an individual purchasing group,'' he said.

Under this type of new innovation, there is potential to equal the volume of premium that flowed into Bermuda in the mid-1980s, he concluded.

"This could go, will go, and needs to go.

"This is the most exciting time to be in D&O,'' Mr. Blais said.

"We are excited about Bermuda stepping out and offering an alternative,'' Park International Ltd. president Mr. Paul Scope.

Park International is a Bermuda-based broker recently acquired by Mutual Risk Management Ltd.

"They (Bermuda's D&O market companies) are there as a primary player. "This is what the buyer is looking for,'' he said.

Mr. Scope, who also spoke at the symposium, provided delegates with an overview of Bermuda D&O market players.

Watson Wyatt Worldwide risk management consultant Mr. Phillip Norton was also on yesterday morning's agenda.

Mr. Norton, responsible for organising the symposium and bringing it to Bermuda for the first time, presented delegates with findings from the 1994 Watson Wyatt D&O Liability survey, a comprehensive report he authored.

The report includes responses from 1,231 companies.

"We are seeing a very soft (D&O) market currently,'' he said.

"How long that will continue will be driven, somewhat, by claims' trends,'' he added.

According to Mr. Norton, this line of insurance has seen several trends including: Claim frequency edging up for small and medium-sized companies, those with asset size under $1 million and between $1 million and $1 billion respectively, but companies with over $1 billion in assets are seeing a steady increase. Overall, claim frequency took a large jump in 1994 after steady increases of about 5 percent yearly.

No type of company appears to be safe from a D&O claim and a well managed company does not necessarily mean immunity from a D&O claim.

Claims by shareholders are decreasing slightly while employee and customer claims are increasing slightly.

D&O claim severity has increased drastically.

Purchasing D&O is not a magnet for claims.

The 1995 survey is almost complete, he noted.

Disclosure is the big issue of the 1990s in D&O claims, he said.

In the 1987 Wyatt survey, only four percent of the shareholder claims were deemed disclosure.

That percentage had risen to 35 last year.

The two-day conference concludes today.