Market Features

Try Jim Cramer's Action Alerts PLUS
CLICK HERE NOW

Backdating's Long Shadow

06/13/06 - 08:12 AM EDT

AIG

Troy Wolverton

Either decision would leave shareholders footing the bill entirely for fines or lawsuits resulting from the backdating scandal.

"If [companies] are not able to show that [they haven't done any backdating], I would expect that kind of behavior," says Steve Shappell, managing director of the legal and claims practice at the financial services group of Aon, an insurance brokerage.

But even companies not caught up in the scandal might feel its effect. Insurers are likely to pursue more restrictive clauses about backdating across the board, warned Doernberg in his note to clients.

"Some insurers ... may try to impose or negotiate wording that would make it more likely that one or more of the standard policy exclusions will be triggered in the event of a claim," he said. "Small differences in policy wording can have an enormous impact on the availability and extent of coverage in option-grant claims and in many other types of claims."

And Doyle warned that depending on how widespread the options scandal turns out to be, companies across the board could face higher premiums on their D&O policies. Although such premiums have declined in recent years, the backdating scandal is just one more risk that insurers face in an environment where companies already face increased scrutiny, he said.

"There' s probably more uncertainty [about corporate insurance claims] right now than ever before," he said. Assuming the backdating scandal is widespread, "it absolutely will have an effect on price, and terms and conditions as well."

However, other insurance experts doubt the scandal will affect general corporate premiums. There's still a lot of competition in the market to underwrite directors' and officers' insurance, and prices have declined in recent years, notes Shappell.

But even Shappell acknowledges that some insurers may take a broader-brush approach in writing policies this year as a result of the scandal. Instead of just targeting specific companies, the industry may try to raise rates on sectors considered more at risk, such as the technology sector, which has seen the bulk of the backdating investigations to date, he says.

"This is one more issue where you're going to have to spend time preparing for meetings with underwriters to explain that you are not at risk," Shappell says.




1 2 3
» Next

Previous Story

No Charges for Karl Rove

Headlines & Perspectives

Market Features

Go To Section Home


06/12/06
Broadcom Gets Option Scrutiny

The chip company says it is acting with integrity.


06/12/06
Weighing Options With Robert Olstein

The fund manager says the backdating scandal was nearly impossible to spot.


06/07/06
Options' Deluding Effect

Focus on the backdating scandal ignores the huge impact of legal transfers of wealth.


06/01/06
Backdating: Where's the Outrage?

The relative lack of investor concern is disconcerting.


05/30/06
Rambus to Probe Option Grants

The company will focus on timing up to 2003.


05/30/06
McAfee Fires General Counsel

The company cites questions about an option award in 2000.


05/19/08
Cramer on Top Searched Stocks: Yahoo!

Yahoo! is among the most searched stocks on TheStreet.com. Here's what Cramer had to say about the stock recently.


05/17/08
Jim Cramer's Best Blogs

Catch up on his thinking on the hottest topics of the past week.


04/26/08
Coming Week: Make or Break

Investors will have to deal with a Fed meeting and another flood of earnings and economic data.


05/19/08
Top Rocket Stocks: Ensco

Ensco International and Echelon have the potential to move higher in coming days.


04/28/08
Monday's Analysts' Upgrades, Downgrades

See who made what calls.


05/19/08
Telecom Giants See a Savior in Video

The addition of video is helping telecom companies compete against cable and satellite companies.


05/19/08
Contract Expiration Tempers Oil's Rise

The June West Texas Intermediate contract reflects selling pressure ahead of Tuesday's expiration. But stocks in the sector are generally trading higher.


05/19/08
Analysts' Upgrades, Downgrades: Amazon

See who made what calls.


Your Recent Quotes: Quote Up0 | Quote Down0
Dow S&P 500 NASDAQ
Oil*
Gold
10 Yr
0.00%
%
%
%
Data delayed 20 min
Sign up for our FREE newsletters now.

Keep on top of the market and the critical information you need to make more profitable investing decisions.

  • Cramer's Daily Booyah!
  • Before the Bell

Privacy Policy

See All Free Newsletters

Premium Stock Ideas
Access Action Alerts Plus to find out Cramer’s latest picks now!