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

OLDWICK, N.J.--(BUSINESS WIRE)-- 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. Visit www.ambest.com for more information.

Copyright © 2019 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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David Blades, CPCU

Associate Director, Industry Research

and Analytics

+1 908 439 2200, ext. 5422

david.blades@ambest.com



Sridhar Manyem

Director, Industry Research

and Analytics

+1 908 439 2200, ext. 5612

sridhar.manyem@ambest.com



Christopher Sharkey

Manager, Public Relations

+1 908 439 2200, ext. 5159

christopher.sharkey@ambest.com



Jim Peavy

Director, Public Relations

+1 908 439 2200, ext. 5644

james.peavy@ambest.com

Source: AM Best