D&O Insurers Not Worried About Stock Options Backdating Probes…Yet

January 12, 2007

The insurance industry does not think the emerging scandal over backdating of stock options will reach a point where it will pose a major claims problem for insurers of directors and officers.

“If it were a problem, D&O rates wouldn’t be going down,” suggested Jay Gelb, non-life insurance equity analyst for Lehman Brothers.

Martin Sullivan, president and chief executive of the American International Group Inc., said the backdating situation is one his firm is monitoring closely but that it appears to be a “manageable issue.”

An executive from an insurer ratings organization noted that there might be some claims, but Matthew Mosher, vice president with A.M. Best Co., commented, “I don’t know that it’s going to be a major issue.”

There’s reason for insurers to be watching it closely. Sullivan noted that when he asked his underwriters if they saw the backdating issue coming, they said no. “So we didn’t get paid for it either,” he added.

Federal regulators have targeted close to 200 companies for allegedly backdating options.

The executives commenting on the D&O market were among those at a Joint Property Casualty Insurers Forum sponsored by the Insurance Information Institute in New York.

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