Not just because it was the day after Christmas does Duke Energy risk manager Jeffery Triplette recall December 26, 2002, as a particularly glowing time.
On that day, New York district court judge Jed Rakoff threw out 13 shareholder class-action suits alleging that the Fortune 500 utility was using “round trip” trades to overstate revenues. With that stroke of the pen, says Triplette, Rakoff made Duke’s negotiations with its directors’ and officers’ liability carriers a whole lot easier.
The suits, after all, had needed a great deal of explaining. Triplette was then bargaining with the company’s D&O underwriters for a decent renewal of Duke’s three-year policy, which was set to expire in June 2003. Once the lawsuits were dismissed, the company was able to hang on to its existing coverage for another year — but with an increase in the triple digits.
Considering Duke’s size, the fact that it was in the energy sector (think Enron), and the overall hardness of the D&O market, however, that premium hike of more than 100 percent didn’t look all that bad to the risk manager. Triplette feels that he was able to secure as good a deal as he did by talking to his underwriters often, even though the coverage had been locked in for three years. After litigation arose in mid-2002, he met frequently with the insurers, informing them of the claims and the company’s case against them. “We wanted to show the markets we were a good company,” says Triplette, “even though we had some D&O lawsuits to be litigated.”
The effort might pay dividends for Duke on its next policy renewal, slated for June 2004. Indeed, the prospects for D&O buyers in general seem to have brightened considerably in the third quarter of last year.
Both insurance brokers and underwriters say that price hikes for all but the largest and most difficult risks have typically moderated to the low double digits for coverage that’s the same or better. Indeed, some commercial insureds with lawsuit-free records and pristine corporate governance are reportedly enjoying price decreases. Citing Duke’s new CEO, Paul Anderson, as an indication that the company is “on the right track,” Triplette is looking for a D&O price cut in June.
To be sure, the current clearing of the D&O clouds came at the end of a particularly gloomy, scandal-plagued year. In 2003 the average D&O premium bump was 33 percent, according to just-released results of a Tillinghast-Towers Perrin survey of more than 2,000 companies.
Further, the maximum amounts of D&O coverage available to any one company shrank last year to $1.35 billion, according to the Tillinghast study. That was the lowest top level of coverage on the market since 1997.
In the latter part of 2003, however, such tight underwriting began enabling carriers to place bigger bets on the possibility that they wouldn’t have to shell out large sums for judgments against the boards and senior managements of their clients. As the economy improved, say managers who’ve been seeking coverage for their companies, insurers were able to keep prices stable to generate cash flow that funded investments in a rising equity market.