A study by Erik Lie and Randall Heron, finance professors at the Universities of Iowa and Indiana, estimated that more than 2,200 companies manipulated stock-option grants at some point between the beginning of 1996 and late 2005.
SEC Chairman Christopher Cox said on Monday that Federal securities regulators are poised to file civil charges in a case involving stock option backdating. "For some period of time now, it's been abundantly clear that these are not merely episodic instances," Cox said.
AIG is the D&O market leader based on premium volume, according to Tillinghast's survey.
AIG shares have declined 9% since the beginning of May. While D&O payouts this time won't be as large as those from the technology stock-market slump or the collapse of Enron and World Com , there may be lots of small claims that add up, insurance brokers said.
As Chubb put those problems behind it, shares of the insurer more than doubled, hitting a record high of .34 in early May after the company reported strong results. The stock has since lost 5%, partly on concern the stock-options backdating scandal will take the shine off the insurer's recent run of improving results.
A Chubb spokesman said the company can't comment on the potential impact of stock-options backdating until its earnings conference call on July 25.
"The sheer frequency becomes an issue for leading D&O underwriters that have a big market share," he said.
"I don't expect settlements to be huge, but even if they end up being million or million, that will have an adverse effect on those companies writing primary coverage, like Chubb and AIG." Derivative suits will particularly hit a type of coverage called A-side only D&O insurance, which has become very popular in the past five years.
So-called D&O policies protect executives and members of a company's board from liability in the event of a lawsuit against them claiming wrongdoing in connection with their firm's business.
A spokesman for the insurer declined to comment on Wednesday. The options backdating scandal hasn't dented stock prices of the companies involved much.