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Survey Report

Insurance Marketplace Realities 2019 Spring Update — Directors and officers liability

Financial, Executive and Professional Risks (FINEX)
N/A

April 23, 2019

The D&O market has generally firmed, but is not hard. Overall, capacity remains available and, if the price is right, willing.

Rate predictions

  Trend Range
Overall Neutral increase (yellow line with purple triangle pointing up) Flat to +10%
Public company — primary Increase (Purple triangle pointing up) +5% to +20%
Public company — excess-lower layers Increase (Purple triangle pointing up) +5% to +10%
Public company — excess higher layers Neutral increase (yellow line with purple triangle pointing up) Flat to +5%
Private and not-for-profit Neutral increase (yellow line with purple triangle pointing up) Flat to +15%
Side–A/DIC Neutral derease increase (green triangle pointing down, yellow line, purple triangle pointing up) –5% to +5%
Financial institutions — Public Neutral increase (yellow line with purple triangle pointing up) Flat to +5%
Financial Institutions — Private Neutral increase (yellow line with purple triangle pointing up) Flat to +2.5%

Key takeaway

The market has generally firmed, but is not hard. Overall, capacity remains available and, if the price is right, willing. Competition will sometimes temper rate pressure opportunistically, but the market has largely followed the leaders on rate-increase strategies for primary and lower excess layers.

Few directors and officers (D&O) placements will receive pricing reductions. Increases are more likely, but usually manageable.

  • Competition: Leading insurers have demonstrated effective discipline and are more conservatively deploying capacity in the face of profitability challenges. London market appetite for D&O (including U.S. publicly traded D&O) has waned. As rates firm, however, the potential for renewed competitive pressure increases.
  • Support of incumbent carriers versus marketing: 2019 renewals may challenge the more price-sensitive buyers in their support of incumbent insurers. If achieving the most competitive pricing is the primary goal, then go to market. As reflected in our 2018 Management Liability (Directors and Officers) U.S. Survey, insurer quality (financial strength and coverage expertise) and long-term relationships matter, so that may mean paying slightly more premium.
  • Private and not-for-profit companies: Financial health and industry matter. Financially distressed firms, companies in volatile or emerging industries and firms that have anti-trust exposures will likely continue to see premium increases, higher retentions and/or coverage restrictions.
  • Excess: The high cost of defending claims is, now more than ever, putting lower excess D&O insurers “in the burn layer.” Pricing for lower excess is seeing more pressure than last year. We expect continued upward rate pressure from incumbent, low-excess insurers.
  • Side-A/DIC: While we are still likely to see competition-driven pricing based on the profitability of the product, for many programs flat is a good result. However, there are some programs still seeing declines — especially when underlying coverage is broadened to lessen the likelihood of a DIC drop down.

Underwriting discipline may mean more active responses to loss drivers.

  • Securities class actions (SCAs): Frequency trends remain at historically high levels. It’s too early to tell if this is a new normal. The severity of losses could worsen as relatively higher stock prices could produce precipitous stock drops. Also, more merger and acquisition suits surviving the transaction effective date could drive up losses. Result: Heightened pricing pressure.
  • Cyber and privacy: Social accountability, social media’s impact (e.g., #MeToo), privacy compliance risks and dynamic cybersecurity risks could put pressure on terms. Privacy issues are blurring the lines between cyber insurance and D&O insurance, creating D&O insurer concerns.
  • IPOs: These risks continue to be harder to place as insurers monitor the impact of the SCOTUS decision in Cyan, Inc. v. Beaver County. However, as the scarcity of capacity for offerings pushes rates and terms, we may find opportunistic carriers willing to step in — for the right price.
  • Coverage: New products and features will continue to be offered. New features are likely, but meaningful improvements may come with a price. Areas of focus are likely to include investigation coverage, social media, crisis and reputation protection, #MeToo-related and Side-A DIC enhancements.
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