Directors and officers liability insurance rates for many public companies have been essentially flat or continuing to decrease, but rates are beginning to increase in the private segment, which may signal a general increase in the sector, observers say.

Steve Boughal, New York-based vp and chief underwriting officer of Hartford Financial Products, a unit of The Hartford Financial Services Group Inc., said overall, “We're seeing macro trends putting pressure on D&O carriers, and it's putting upward pressure on price, leading to price stabilization in many areas and increases in others.”

These macro trends include the extended soft market cycle, increases in legal costs, low investment yields and heightened regulatory pressure, he said.

Joseph O'Donnell, New York-based executive vp at Endurance Risk Solutions' professional lines practice, said, “The underwriting community is finally at the point where enough's enough, and it's time to stabilize the rates and get moving in a positive direction.”

Observers draw distinctions between the D&O markets for private and publicly held firms. Phil Norton, Chicago-based president of the professional liability division at Arthur J. Gallagher & Co., said, “We see a market that appears to be moving, and it's starting with our smaller, private companies. They're seeing, for the most part, increases, some of which are significant.”

“The larger private companies are seeing renewals that are closer to flat,” Mr. Norton said. “They're being underwritten more specific to the account vs. to the book of businesses, but still decreases are disappearing” for these companies, Mr. Norton said.

Among publicly traded companies, smaller firms “are mostly having flat renewals, while the larger publicly traded companies are still seeing decreases.” But among insurers, “there's a lot of posturing that those decreases are going to disappear” as the year progresses, Mr. Norton said.

“Things are basically overall stable,” said Kevin LaCroix, executive vp at OakBridge Insurance Services L.L.C. in Beachwood, Ohio. “We are seeing more discipline in the private company sector. That's probably where I see the most movement. A number of carriers have pretty publicly made it clear that they're re-underwriting their books, and certain states or certain sectors are going to be pushing for price increases and seeing nonrenewals,” he said.

Publicly held companies, though, “still haven't seen anything like that yet,” although prices are stabilizing. However, in certain segments, particularly commercial banking, the insurers “are pushing back.” In addition, anything in the residential real estate sector is under pressure, and any financially pressured company will see price increases and constriction of terms and conditions, Mr. LaCroix said.

There is no automatic correlation between hardening in the public and private sectors, said Trevor Howard, senior vp of management liability with Liberty International Underwriters in New York. They are “two distinct marketplaces driven by different loss events,” he said.

There has been increased frequency and some severity on the private side, and “certainly for some similar, some different, reasons,” we may see firming on the public side, he said.

Ann Longmore, New York-based executive vp at Willis North America, pointed to excess layers. Major primary insurers are generally “looking to hold the line moving forward.” However, “there could be two to 10 layers on top” of the primary level, and in the excess layers there is “probably still room” for price compression “somewhere in the range of 5% to 15%, depending on where the level attaches” and how it is priced in the current program, Ms. Longmore said.

Mr. Boughal said, however, that although it is still competitive at the higher excess layers, these insurers are feeling “the same pressure that are driving rate stabilization or rate increases” in the lower layers.

Harder rates may be on the horizon, say some observers. “I would say, close your eyes, buckle your seat belts and hold on tight,” said Peter Taffae, a D&O and E&O liability insurance expert at Los Angeles-based wholesale brokerage Executive Perils Inc.

Ms. Longmore said, “We usually remind our clients that the universe for D&O in terms of pricing typically lags what's happening on the property and casualty side by three to five quarters, or nine to 15 months,” which means there will be some increases.

However, she said she does not expect a very hard market in the short term. While insurers are paying losses, “our understanding is they're still making money,” she said.

Marc London, New York-based D&O underwriter at Beazley P.L.C., said, “I can't see anything other than an improving market. How quickly or how strongly, I don't know but...I would expect rates to either stay stable or continue to firm, but not go back down.”

Jeffrey Klenk, senior vp of management liability at Travelers Bond & Financial Products, a unit of Travelers Cos. Inc., in Hartford, Conn., said he expects continued moderation in the market. “Companies will continue to try to position their books of business in such a way they can write this business profitably,” he said.

Will Fahey, New York-based head of D&O for large companies for Zurich North America, said, “In contrast to past hard markets, where prices spiked significantly in a very short period of time...probably what you'll see is more responsible firming” with “slight increases in a way that should lead to a better market for our clients” than they have had in the past.