Research

Marketplace Realities 2018: Directors & officers (D&O)

November 6, 2017

    The one thing

    Record claims vs. record stock market highs suggests a bumpy road ahead.
  • Not as soft. The overall D&O marketplace, with no shortage of capacity, is still soft and quite competitive — just a bit less so as underwriters, mindful of potentially adverse claim activity, look for ways to avoid compounding the year-over-year impact of declining rate.
  • One carrier’s discipline becomes another’s opportunity. Leading primary carriers for publicly traded and private policyholders continue to demonstrate pockets of underwriting discipline — real, sustained action, not just words. These pockets are carrier-specific, however, and not market moving.
  • Excess dynamics. Competition is still abundant. High excess may test minimums. Some markets look to move down-towers to increase premium/rate. Most carriers can’t get enough side-A excess DIC.
  • It’s a coverage buyer’s fiesta! Consider taking advantage of unprecedented opportunities to get more value out of D&O coverage. For example, entity investigation coverage keeps getting better and the price can be very attractive.
  • Quality, now more than ever, matters. As carriers feel the squeeze between the risk they are taking and rate in a competitive market, something’s got to give. Financial strength and a demonstrated commitment to paying claims really matter.
  • Rate. Premium increases are still the exception, not the rule. Specific segments, tougher hazard classes (IPOs, pharmaceuticals, high-tech, bio-tech) or company-specific adverse risk profile development can make favorable rate results more challenging to achieve. For companies with favorable risk profiles . . .
  • Price prediction

    Overall
    -7% to Flat

    Public company — primary
    -7.5% to +5%

    Public company — excess
    -5% to -15% (includes Side-A)

    Private companies
    Flat to +5%

    Not-for-profit entities
    Flat to +10%

    Financial institutions
    Flat to -5% (Excess -5% to -7%)

    • Public companies: Expect slight decreases to flat results on primary placements.
    • Private/not-for-profit (PNP): Flat continues to be achievable.
    • Financial institutions: Rates continue to stabilize with some opportunities for rate decreases — especially for excess.
    • Excess: Excess rates remain competitive. Some test minimums.
      • Excess side-A (DIC): Very competitive.
  • Record claim activity escalates profitability concerns. With key bellwether risks, such as federal securities class action filings at record levels (326 through 2017Q3, according to the Securities Class Action Clearinghouse), primary and excess carriers continue to look harder at where to use their capacity, and at account pricing adequacy. Federal M&A class action filings are growing fast — M&A is still a source of claims!
  • “Animal spirits.” Market indexes are near record highs, yet profit forecasts may be falling. Bubble?
  • Shareholder activists. Activists continue to deploy record amounts of capital — $45 billion on campaigns in 2017 YTD, nearly double the total for all of 2016, according to Lazard’s Quarterly Review of Shareholder Activism.
  • Individual accountability: Efforts to hold executives accountable have changed the dynamics of D&O defense for the foreseeable future.
  • Cyber/technology. Even the SEC is not immune, as high-profile security events could result in a new wave of securities regulation and litigation.
  • Effective global coverage. The trend toward buying local policies in conjunction with a U.S.
    master policy continues, and markets are responding with more capabilities and solutions.