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Asset management market update

D&O/E&O insurance market: Q2 2020 update

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By Timothy M. Sullivan | August 11, 2020

A deep dive into the D&O/E&O insurance market, including a focus on cost, markets, targeted segments, capacity and coverage.
Cost and retentions
  • Primary Premiums: Typically increasing by 10-15% on primary layers for most asset managers.
  • Excess Premiums: Some markets pressing for increases greater than those imposed by the primary if pricing is deemed inadequate.
  • Per Claim Retentions: Generally remaining flat, though minimum retentions of $250K for middle market risks are now standard.
  • Exceptions: Material changes in risk profile, including AUM (beyond general market volatility), M&A activity, and/or claim experience will result in more severe adjustments to renewal terms.
Markets
  • Uniform Approach: Markets holding firm on imposing rate increases, with very few willing to undercut pricing of their competitors.
  • Walking Away: Some insurers exiting programs they deem underpriced, possibly creating a more challenging renewal process.
  • Relationship Considerations: Breaking relationships with long-term partners may be required in order to mitigate premium increases.
Targeted segments
  • Appetite: Asset management, particularly registered investment advisers/funds, is one of the few areas insurers are looking to grow.
  • Limited Interest: Private Equity, BDCs, REITs, and managers with high exposure to CLOs, Real Estate and other stressed investments.
Capacity
  • Stable Capacity: Significant capacity is keeping rates more competitive for asset managers than other financial institution sub-industries, though insurers are adjusting their deployment of limits, with many offering a maximum of only $10M for any one program.
Coverage
  • Stable to Narrowing Coverage: Scope of cover generally remains broad, though some insurers are narrowing breadth of D&O/E&O coverage in some areas, including:

    • Cost of Corrections: limiting applicability to trade errors only (vs. any operational errors).
    • “Silent Cyber”: eliminating ambiguity for cyber-related claims by adding language clarifying what is (and is not) covered.
    • Derivative Demand Investigation Costs: reducing/eliminating sub-limits for this cover under primary and excess policies.
  • Blended Programs: The EPL and Fiduciary market is increasingly stressed, so D&O/E&O programs that are blended with these lines should expect added renewal challenges, including a more invasive underwriting process, narrowing cover and increased rates/retentions.
Impact of COVID-19
  • Insurers are generally are not taking broad negative actions in response to COVID-19, but are assessing each renewal on its own merits.
  • Insurers are carefully reviewing the risk profiles of asset managers, including the composition and performance of investment portfolios.
  • Expect extensive questions on the impact of, and response to, the pandemic, as well as plans for returning employees to the workplace.

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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