Fitch Ratings: D&O Premium Increases to Slow Down

According to Fitch Ratings, a three-year trend of steep premium increases in the US directors and officers (D&O) insurance market, along with lower limits, higher retentions, and more coverage exclusions, is beginning to subside.

Source: | Published on September 16, 2022

D&O insurance rates

These trends have resulted in an improvement in the financial performance of US D&O insurers over a three-year period. According to the rating agency, the slowing of these trends is causing a reduction in both rate momentum and premium volume this year.

The price increases, according to Fitch, in the US D&O market over the last three years have been among the steepest among all commercial insurance lines.

"Expansion of underwriting capacity from new entrants, as well as potential claims volatility from multiple sources, reduce the likelihood that current underwriting gains will last," according to a Fitch statement.

According to the rating agency, the performance of the US D&O segment continued to improve in the first half of this year, with the direct loss ratio falling to 53.4 percent from 54.7 percent for the full year 2021. The combined ratio for the segment in the first half was estimated to be in the mid to high 90 percent range. Earned premium growth of 22% compared to the first half of 2021, as well as insurers' relatively stable loss experience, contributed to the improvement, according to Fitch.

Following a 130 percent increase in direct written premiums from 2018 to 2021, premium growth in the US D&O market has begun to reverse in 2022, with premium volume declining 2.7 percent year on year during this year's first half, according to Fitch. According to the rating agency, a flat to negative premium volume trend is expected to continue in the near term.

Fitch noted that D&O insurers' long-term profitability is dependent on pricing levels keeping pace with loss trends that are less predictable and may be driven higher by inflation and lower economic growth.