NEW YORK—Directors and officers liability insurance underwriters are faced with increased exposures stemming from a growing frequency in accounting mistakes and subsequent earnings restatements by U.S. public companies, market experts say.

"We still have a lot of issues surrounding the quality of financial disclosure," said Keith M. Thomas, senior vp, commercial markets, in the management solutions group of Zurich American Insurance Co. in New York.

He was speaking during a session at the Professional Liability Underwriting Society's D&O Symposium held recently in New York.

Last year was a record year for financial restatements, noted Jonathan Weil, a managing director at Bloomfield, Conn.-based research firm Glass Lewis & Co. L.L.C.

In 2006, 1,422 restatements were made by 1,246 companies, compared with 1,254 restatements made by 1,158 companies in 2005, according to Glass Lewis.

That means that nearly 9% of all U.S. public companies made earnings restatements last year, Mr. Weil said, many of which fit the category of so-called "stealth restatements."

Rather than being prominently announced, stealth restatements are tucked into a company's 10Q or 10K report filed with the Securities and Exchange Commission (see box).

Companies that choose to make stealth restatements should be carefully scrutinized by underwriters, said Mr. Weil.

One red flag underwriters can look out for is "when a company shifts their metrics," or makes changes to earnings guidance, or reporting procedures, said Marc Seigel, who is global director of research at the Center for Financial Research and Analysis based in Rockville, Md.

Additionally, mergers and acquisitions can elevate the likelihood of a company having to restate, due to potential disruptions in internal controls,Ýthe experts noted.

Martin F. Baumann, deputy director of the Public Company Accounting Oversight Board in New York, said the majority of earnings restatements aren't linked to corporate scandals, but are "technical restatements" brought on by complex accounting rules enforced by regulators under the Sarbanes-Oxley Act and Financial Accounting Standards Board rules.