The market for directors and officers liability insurance remains soft in nearly all sectors with no end in sight, observers say.

Plentiful capacity competing for a diminished number of buyers has prices falling just as they were a year ago, brokers and underwriters say.

Most renewals are seeing high single-digit or low double-digit rate decreases, with pricing even more competitive for Side A policies that cover individual directors and officers, underwriters say.

Even the financial services sector, which was the sole portion of the D&O market to see hardening prices during the past few years, appears to have largely flattened. Some financial firms with unfavorable circumstances are seeing flat renewals, while others are seeing rate decreases up to 10%, underwriters say. Some financial services companies that have improved their balance sheets and took significant rate increases in their past two renewals could achieve double-digit rate decreases this year, they said.

“There's so much capacity and so much competition in turn for excess placements that it's just putting huge downward pressure on the prices,” said David Conca, New York-based director of risk management at Time Warner Inc.

“That, coupled with weak economic conditions, is putting huge budget pressure on risk managers and companies. So because of all that, it's just not the right environment to raise premiums,” Mr. Conca said.

Soft pricing is being buoyed by abundant capacity that has shown no signs of abating. In fact, observers say capacity has increased slightly as several new insurers have joined an already crowded market.

“There's more than 50 markets right now in the D&O market,” said Michael Dandini, New York-based senior vp at Hartford Financial Products. Colleague William Kelly, New York-based vp-commercial risks at Hartford Financial Products, said that is at least double the number of insurers writing the business a few years ago.

Mr. Dandini said the competition is so fierce that some participants are venturing into the financial services sector for the first time because they cannot secure the rates they need in the commercial D&O sector. This dynamic is contributing to a flattening market for financial firms, he said.

“A lot of those financial institutions have corrected their balance sheets over the last 18 months, so they're in a much better position,” Mr. Dandini said. “So in some sense, there is a warranting of better” pricing.

Competition is especially fierce on the excess layers, where the new market players write more business.

Mr. Kelly and other underwriters said they are starting to see excess rates at 60% of the primary layer, compared with 80% or 90% during the hard market.

This means an even more significant rate reduction if the price of an excess layer becomes a smaller portion of the primary layer and the primary layer then falls 10% or more, said Joseph O'Donnell, New York-based executive vp at Endurance Risk Solutions Professional Lines practice. This trend is not sustainable for insurers, given the cost of defending suits and potential increases in claims, he said.

The fierce competition comes as D&O policyholders face a wide array of potential exposures.

The Deepwater Horizon oil spill in the Gulf of Mexico has provoked several derivative suits against lessee BP P.L.C. and others involved in the drilling operation. And congressional Democrats had assembled a package of significant changes to financial regulation, which observers said could enhance opportunities for plaintiffs to sue.

Underwriters are monitoring those issues but appear more concerned by a slew of persistent and burgeoning exposures, including enforcement of the Sarbanes-Oxley Act; increased enforcement of the Foreign Corrupt Practices Act, an anti-bribery statute; formalizing international corporate laws and regulation; and the continuing potential for litigation to end in big settlements or judgments for plaintiffs.

For example, the 9th U.S. Circuit Court of Appeals last month reinstated a $277.5 million jury verdict against Apollo Group Inc. for alleged violations of federal regulations that led to a drop in its stock.

Some D&O market observers say defendants in subprime and credit crisis-related lawsuits have fared better than anticipated on motions to dismiss, but underwriters do not yet appear ready to celebrate.

“There have been a fair number of dismissals, but a fair number of them have been "without prejudice' and can be refiled,” Endurance's Mr. O'Donnell said. “Just because a few of these cases have been dismissed, I think that carriers still need to carefully evaluate their exposure to ensure that they're adequately reserved.”

Some subprime cases have ended with settlements that secured contributions from underwriters of Side A-only policies, which traditionally have avoided most such claims. That trend could spur higher settlements, said Marc London, a New York-based D&O underwriter at Beazley P.L.C.

Previously, “there was a lower expectation on the part of plaintiffs that a settlement would have insurance,” he said. “Now that there's insurance available for these settlements, I think plaintiffs may attempt to more proactively construct the deals to access more insurance.”

Demand for stand-alone Side A policies has increased significantly in recent years. Mr. London said buyer interest is still there but has leveled off. “I don't think it's going away, but the ramp-up appears to have subsided,” Mr. London said. “I think there were enough bankruptcies and enough big, megalosses to get buyers aware of the (Side A) risk for the last three, four years.”

In some cases, the exposures are driving changes in terms and conditions. Some markets are offering D&O policies that cover violations of Sarbanes-Oxley provisions and some are covering informal regulatory inquiries, underwriters said.

“You can only compete so long on price,” Mr. Kelly said. “Sooner or later, the softness spreads to terms and conditions.”

In 2008, when insurance holding companies American International Group Inc., XL Capital Ltd. and Hartford Financial Services Group Inc. faced financial challenges, many buyers tried to diversify their D&O towers among a larger number of insurers.

But Endurance's Mr. O'Donnell said that buying trend has reversed in some cases, in part as companies seek cost savings that can be achieved by concentrating coverage with one insurer.

“Two years ago, risk managers were pulling back the limits they'd place with any one carrier,” Mr. O'Donnell said. “Now two years later, we have customers who are willing to place big blocks of capacity with one carrier.”