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Survey Report

Insurance Marketplace Realities 2020 Spring update – Financial Institutions (FI)

Financial, executive & professional risks (FINEX)

Financial, Executive and Professional Risks (FINEX)
COVID 19 Coronavirus

May 7, 2020

The financial lines market for financial institutions (FIs) is firming across the board and at an accelerated rate.
Rate predictions
  Trend Range
D&O — Publicly traded financial institutions Increase (pink triangle pointing upward) +10% to +20%
Side-A/DIC Increase (pink triangle pointing upward) +5% to +10%
D&O — Private financial institutions Increase (pink triangle pointing upward) +5% to +10%
D&O/E&O – Asset managers (excluding private equity/general partnership liability)
Large
Increase (pink triangle pointing upward) +5% to +15%
Middle market
Increase (pink triangle pointing upward) +5% to +10%
Bankers professional liability (BPL) Increase (pink triangle pointing upward) +5% to +12.5%
Insurance company professional liability (ICPL) Increase (pink triangle pointing upward) +5% to +12.5%

Note: For employment practices liability (EPL), fiduciary liability and fidelity (crime), please see dedicated sections elsewhere in this report. The above price predictions do not include private equity general partnership liability (GPL).

Key takeaway

The financial lines market for financial institutions (FIs) is firming across the board and at an accelerated rate.

Overall, rate increases are becoming more significant, with more double-digit increases.

  • FI insurers continue to demonstrate pricing discipline in both primary and excess layers.
  • Replacement capacity is often not available at a more competitive premium, but marketing programs is recommended to achieve best results, especially if a program has not been marketed in the past few years.
  • U.K. and Bermuda markets continue to offer solutions for the right premiums, retentions and attachments.
  • Most programs can find adequate capacity, though some insurers have been reducing limits in certain areas and are more closely managing overall aggregation.

The FI public D&O marketplace is seeing lower increases compared to the commercial D&O marketplace, which is experiencing severe increases.

  • Lower rate increases are due to public FI D&O rates not dropping as low in the soft market as commercial D&O rates.
  • Average rates are in the high single digits, and we are starting to see movement toward double-digit increases.
  • Excess insurers are trying to right size increased limit factors (ILFs). Excess insurers are also following underlying increases to avoid added deterioration in their ILFs.
  • Insurers continue to push for increased D&O retentions, with insurers indicating that retentions have not kept pace with the growth of insureds and, as a result, we often see no meaningful credit for retention increases.
  • There is generally adequate program capacity, but some insurers are reducing or looking to ventilate capacity.

Private D&O insurers are seeking premium increases, as claims continue to be on the rise against a background of historically thin pricing.

  • Insurers are seeking increased retentions and looking to tie in limits among previously separate towers, especially between D&O and fiduciary.
  • Side C/entity coverage is becoming narrower, with underwriters seeking entity investigations exclusions, broad professional services exclusions, antitrust exclusions and, in some cases, removal of Side C coverage altogether.

Side-A/DIC D&O insurers are increasingly following the underlying D&O ABC increases.

  • Side A pricing has deteriorated over the years and, in response to some large Side A losses and increased litigation costs, insurers are now seeking rate.

The professional liability (E&O) marketplace varies by sector.

  • Asset managers: The market continues to remain stable as an abundance of capacity is keeping rates competitive. Insurers are requiring minimum retentions of $250K. Middle market asset management continues to be a growth area for underwriters. Larger advisors and funds are experiencing more upward.
  • Insurance companies: There has been continued deterioration in exposure over the last few years, particularly in the life insurance space (notable exposures include universal life/cost of insurance claims and now the impact of COVID-19) and for auto insurers. Primary capacity is limited, but we have seen a few excess-only markets selectively testing the primary market. Overall, carriers are maintaining a conservative appetite and are putting pressure on retentions and pricing.
  • Banks: Although banking regulatory actions and scrutiny has decreased under the current administration, state attorneys general and regulators have stepped up their scrutiny. The current economic downturn could create added underwriting scrutiny. BPL primary capacity continues to be limited, with some insurers becoming more conservative in appetite, retentions and pricing. BPL insurers often require supporting lines.

Several recent coverage trends bear watching.

  • Silent cyber risk: Some insurers are adding cyber exclusions to clarify coverage. As insurers continue to assess their silent cyber exposures, we recommend reviewing policies across product lines to identify potential coverage gaps.
  • Extended reporting periods (ERP): Some insurers are considering removal of ERP options and increased rate factors. There are strategies that can be deployed to mitigate this trend.
  • Excess shareholder derivatives demand investigation (SDDI) coverage: Some insurers are looking to reduce or remove excess drop-down sublimits due to an increase in losses.

We are closely monitoring the impact COVID-19 will have on underwriting appetite and the current rate environment.

  • Regulators are coming out with COVID-19 guidance. Disclosures related to COVID-19 will come under scrutiny.
  • Business continuity plans are being put to the test in ways not seen before, and network and trading systems are stressed, causing delays and outages that impact services to clients.
  • The present economic volatility may cause an increase in loan defaults and lead to liquidity issues which will make it difficult to maintain capital standards.
  • Insurers are closely reviewing financial services companies with large equity portfolios, which have been impacted by the significant market volatility.

Disclaimer

Each applicable policy of insurance must be reviewed to determine the extent, if any, of coverage for COVID-19. Coverage may vary depending on the jurisdiction and circumstances. For global client programs it is critical to consider all local operations and how policies may or may not include COVID-19 coverage. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal and/or other professional advisors. Some of the information in this publication may be compiled by third party sources we consider to be reliable, however we do not guarantee and are not responsible for the accuracy of such information. We assume no duty in contract, tort, or otherwise in connection with this publication and expressly disclaim, to the fullest extent permitted by law, any liability in connection with this publication. Willis Towers Watson offers insurance-related services through its appropriately licensed entities in each jurisdiction in which it operates. COVID-19 is a rapidly evolving situation and changes are occurring frequently. Willis Towers Watson does not undertake to update the information included herein after the date of publication. Accordingly, readers should be aware that certain content may have changed since the date of this publication. Please reach out to the author or your Willis Towers Watson contact for more information.

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