Directors and officers liability coverage for financial institutions may soften next year as more capacity enters the market, but few decreases are expected at the looming Jan. 1, 2010, renewals, brokerage Willis Ltd. said in a report released Monday.

Financial institution D&O coverage is one of the few areas of the D&O market where rates are still increasing. Some financial institutions may see even higher premiums at the beginning of 2010 as a result of costly reinsurance renewals for D&O insurers, according to the fourth-quarter Financial Institutions market update from FINEX Global, Willis' London-based financial, executive risk and professional liability unit.

In contrast, abundant underwriting capacity has kept D&O rates largely soft for nonfinancial institutions despite a poor claims environment.

Financial institutions have been hit worse than other sectors by lawsuits arising from the credit crisis, subprime-mortgage meltdown and weak stock prices. But the hard market for financial firms could change next year with new insurers writing D&O coverage, Willis said.

“We are going to see new capacity enter the market in 2010,” Duncan Holmes, managing director of FINEX Professional Risks, said in a statement.

Until then, the market for financial institutions remains hard as underwriters commit capacity very cautiously and look to increase premiums at least 10% to 15%, the report said.

Some D&O reinsurers are experiencing loss ratios as high as 300% for the policy years of 2007 and 2008, so primary D&O insurers' costs are unlikely to decrease until at least the end of 2010, the report said.

A bright spot in the sector could be small- to medium-size financial institutions with clean claims histories, which could start seeing premium reductions in the spring or summer of 2010, the report said.

Separately, Chicago-based brokerage Aon Corp. last week also said that the D&O market for financial institutions showed signs of softening.

Copyright © 2009 Crain Communications, Inc.