D&O Rates Improve As Carriers Push to Restore Profitability: Fitch Report

Premium pricing has improved significantly for directors and officers (D&O) liability in 2019 as carriers work to restore profitability, according to analysts at Fitch Ratings.

Source: Reinsurance News | Published on October 1, 2019

Board of directors and cyber risks

Fitch noted that D&O liability business has seen several years of weaker performance, driven by flat premium growth and less favourable claims trends in a shifting tort environment.

However, reductions in underwriting capacity and policy limits from several leading underwriters are now contributing to larger rate increases.

“The latest reports from global brokers indicate that double digit year over year rate increases are not uncommon for recent renewals,” said Jim Auden, Managing Director at Fitch Ratings.

“As a result, D&O premium volume has turned positive for the first time after four consecutive years of relatively flat growth,” he explained.

Fitch currently believes that industry statutory direct written premium will increase by between 8% and 10% in 2019.

Nevertheless, heightened claims activity in several areas and rising defence costs and legal settlements remain a concern for D&O underwriters, analysts warned.

For example, a spike in securities class action filings in 2017 and 2018, particularly relating to merger objection claims, continues unabated in 2019.

The D&O segment also faces claims risk from multiple emerging sources including cyber risk and employment practices, Fitch noted, from which higher risk of loss may also translate into greater demand for coverage.

Rate increases already appear to be having a positive impact on industry results, as the industry direct loss ratio for the D&O segment dropped to 57% in the first half of 2019, down from 62% in full-year 2017 and 2018.

On the other hand, Fitch cautioned second-half results could be marred by continued recognition of less favourable claims experience and adverse loss reserve development.