The directors and officers liability market generally is hardening, but pricing depends on factors that include a company's size and type and its loss history.

While rates are increasing overall, private and nonprofit entities are seeing higher increases. And small firms of all types are likely to see larger rate hikes, observers say.

Rate hikes are occurring in the primary or low excess layers, while significant competition continues in the higher excess layers, observers say.

Among factors prompting higher rates is an “uptick in frequency” in D&O claims, which has boosted rates for the primary layer and is starting to affect the first excess layers, said Trevor Howard, senior vp of management liability with Liberty International Underwriters in New York.

“We've finally reached an inflection point where all the main primary carriers feel they no longer can stomach the decreases,” said Will Fahey, New York-based head of D&O for large companies at Zurich North America.

Observers estimate rates range from 5% decreases to 15% increases in the primary layer, while the excess layers range from slight decreases to flat.

The majority of D&O primary business is seeing increases, “and depending on the risk profile, some of them are fairly large,” although “there are a handful of flat renewals out there,” said Mr. Fahey.

Accounts with no losses are experiencing single-digit increases, he said.

“Initial indications are (that) we're looking at flat renewals,” said Mark Bennage, director of risk management at Little Rock, Ark.-based Windstream Corp. unit Windstream Communications. Mr. Bennage, whose broker is Kansas City, Mo.-based Lockton Cos. L.L.C., said he is pleased “because I was really expecting a small increase.”

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“We see signs of firming” in price and coverage, a move away from the years of price reductions and enhanced coverage. said Tim Bunt, Stamford, Conn.-based chief risk officer for real estate firm CBRE Group Inc. “A lot of that has to do with the industry space you're in.”

Fred O. Pachón, vp of risk management and insurance for Santa Barbara, Calif.-based Select Staffing Inc., said, however, that although his company has not had any claims, its incumbent insurer “is certainly telegraphing some significant increases. And as we have gone to the market, what I'm seeing so far...is that (insurers) are being a bit more conservative as far as the underwriting requirements, and they are digging a lot deeper into the companies' financials.”

“Everything being the same this year vs. last year, (insurers) still want a 5% to 7% increase,” said Peter Taffae, a D&O and errors and omissions liability insurance expert at Los Angeles-based wholesale brokerage Executive Perils Inc.

Rate hikes are segmented, said Phil Norton, Chicago-based president of the professional liability division at Arthur J. Gallagher & Co.

“Nonprofits are getting more increases than are private companies, but more private companies are getting increases than publicly traded companies,” he said.

“Insurers are working very hard to get increases across the board in their private-company books,” said Bill Beck, Lockton's Kansas City, Mo.-based senior vp, insurance and claims counsel. “They're willing to walk away if they can't get the increase they feel they need to keep those books profitable.”

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Observers say claim activity is driving increases for private and nonprofit entities' accounts, as well as the fact that their D&O polices are often combined with employment practices liability coverage.

“Over the last few years, EPL claims frequency and frequency of D&O severity have both increased,” said Steve Boughal, New York-based vp and chief underwriting officer of Hartford Financial Products, a unit of The Hartford Financial Services Group Inc. Insurers “have little choice but to revisit their underwriting approach in pricing.”

Small firms are facing higher rate hikes than larger ones also, although the total premium is still likely to be less, said Ann Longmore, New York-based executive vp at Willis North America Inc. “The steepest increases are on the lower end of the spectrum,” she said.

Brian Dunphy, managing director at broker Frank Crystal & Co. Inc. in New York, said, “Underwriters are looking at ways to adjust retention levels, and trying to put more of the onus on the insured to retain more of the risk by trying to push potential claims a little bit further down the road.”

Meanwhile, “while there's lots of capacity in primary, there's even more capacity in excess,” said Mr. Norton.

Tripp Sheehan, U.S. D&O practice leader for Marsh Inc. in Boston, said, “The feedback I hear from underwriters is that they continue to see an increase in frequency of low-severity losses,” so it would make sense that primary rates would go up while “the excess would remain fairly competitive because the frequency of high-severity losses isn't going up.”

Brokers “may make up some of the increases in primary and first excess layers, and try to recoup some of those dollars higher up in the program, where those layers are viewed as more of a commodity,” said Jeremie Saada, New York-based underwriter, specialty lines division, for Beazley Group P.L.C.

However, “We are starting to see more and more excess carriers trying to follow what the primary is doing,” said Colin Daly, Denver-based-managing principal for Aon P.L.C.'s financial services group.

However, “We are starting to see more and more excess carriers trying to follow what the primary is doing,” said Colin Daly, Denver-based-managing principal for Aon P.L.C.'s financial services group.