Press Release - JANUARY 29, 2019

Best’s Market Segment Report: Emerging Risks, Greater Complexity Challenge Directors and Officers Insurers


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 David Blades, CPCU
Associate Director, Industry Research and Analytics
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Sridhar Manyem
Director, Industry Research and Analytics
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Christopher Sharkey
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Jim Peavy
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FOR IMMEDIATE RELEASE

OLDWICK - JANUARY 29, 2019
Profitability in the U.S. directors and officers liability (D&O) insurance market remains pressured as claims trends continue to be unfavorable amid a pricing environment that has not kept up with increasingly complex risks, according to a new AM Best report.

According to the Best’s Market Segment Report, “Emerging Risks and Greater Complexity Challenge D&O Insurers,” premiums have remained relatively flat between 2014 and 2018 at approximately $6.5 billion while the calendar-year loss ratio rose to 55.5% from 49.3%. Other major obstacles carriers are facing include intense competition and emerging trends such as the #MeToo movement, cyber and the proliferation of class action lawsuits.

Despite the challenges that have created a landscape that is hard to price and underwrite, supply has not been a constraint in the D&O segment, as carriers are continuing to invest capacity in this segment due to a softening catastrophe market. However, the report notes that relatively robust price increases in 2012-2014 have given way to minimal rate increases since, and AM Best believes capacity may constrain any large market correction.

A main driver of the worsening claims frequency trend is the increase in Federal Securities Class Action litigation. IPOs in particular have consistently been a target for class action suits and have thus been quite a challenge for D&O insurance providers. Considering the stock market’s volatility in the latter half of 2018 that erased gains from earlier in the year, AM Best believes a further spike in lawsuits at the beginning of 2019 is possible.

The allegations of sexual misconduct have had a tremendous impact on the speed, strength and breadth of the #MeToo movement. The result has been a growing number of lawsuits alleging corporate misconduct, leading to shareholder derivative actions. Fiduciary duties related to data privacy and cyber-security also could cause increased scrutiny of terms and conditions of D&O policies to identify explicit coverage and exclusion terms.

As the competitive market for D&O coverage shifts in response to loss frequency and severity developments, and new risks requiring revised strategies emerge, insurers, particularly those with a sizable amount of market capacity and appropriate risk management capabilities, may look to re-orient coverage, pricing, reinsurance strategies and relationships to maintain their business profile without compromising on operating performance.

To access the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=282401 .

AM Best is a global rating agency and information provider with a unique focus on the insurance industry.