The U.S. Directors and Officers (D&O) liability insurance segment’s favorable statutory underwriting performance of 2023 is not likely sustainable amid declining premium revenues from lower premium rates, as well as the segment’s inherent underwriting volatility related to changes in litigation activity, defense costs and settlement trends, Fitch Ratings says.
The property and casualty (P/C) industry segment had strong underwriting profit in 2023, with the loss and defense and costs containment (DCC) ratio improving by 8pp to 60%, the best result since 2014.
Given heightened competition, softening market conditions are anticipated to prevail for the third consecutive year in 2024. Aon’s D&O market survey indicates that D&O primary renewal rates dropped in the last seven consecutive quarters. Pricing pressure remains more pronounced in higher-layer and excess business given abundant underwriting capacity.
Direct written premium (DWP) volume is likely to continue to decline in 2024. In response to poorer 2017-2020 market performance, industry direct written premiums (DWP) expanded by 134% from 2018-2021. However, a return to operating success has fosters a shift in pricing momentum, leading to a 23% DWP decline from 2021-2023 to $11.5 billion.
While the number of merger claims remain limited, the volume of more traditional class action filings increased for the first time in three years in 2023, according to reports published by NERA Economic Consulting. The D&O market is exposed to several developing risks outside of traditional claims sources. Growing regulatory and compliance obligations expand the potential for litigation tied to cyber risks, Environmental, Social and Governance (ESG) practices, climate risks, and employment practices.
D&O market share has remained fairly steady. AXA-XL continues to be the leading U.S. D&O writer with a 9.6% market share, despite a sharp drop in 2023 premiums, followed by Chubb (9.4%), Berkshire Hathaway (8.1%), AIG (7.8%) and Tokio Marine US (7.4%).