D&O buyers see double-digit decreasesPosted On: Jul. 3, 2016 12:00 AM CST
Buyers are enjoying competitive rates when renewing their directors and officers liability insurance, particularly in their excess coverage.
Despite the overall soft pricing, more challenging sectors that include life science and financial service firms may benefit less from the soft market, observers say.
Most experts estimate buyers are seeing decreases up to 15% depending on the risk, with the excess layers particularly competitive.
Mark Humphreys, vice president of litigation and risk management at Santa Monica, California-based real estate development and investment firm Watt Cos. Inc., said an area of uncertainty for risk managers right now is the impact of Britain's vote to leave the European Union.
“Nobody knows how the Brexit is going to affect the global insurance market,” said Mr. Humphreys, who said his firm experienced essentially flat D&O rates when renewing May 1.
“The D&O market continues to be a highly competitive space in virtually all segments,” said Frank Baron, New York-based head of management solutions at Zurich North America.
There is ample capacity with stable demand among publicly held companies, with about 5,300 such companies and no huge growth in initial public offerings, said Gregory Spore, New York-based Northeast FINPRO placement leader at Marsh L.L.C.
Marsh public company clients that renewed in this year's and last year's first quarter experienced an overall 4.8% rate reduction, he said.
“It's very much a buyer's market now,” said Brian Wanat, New York-based CEO of the U.S. financial services group at Aon Risk Solutions. “The only difference between this cycle and the soft market of the "90's is the prevalence of multiyear deals” at that time, although “those are starting to creep back” as well, he said.
Aon's recent D&O pricing survey found that the price per $1 million for publicly held clients that renewed in the first quarter this year and last year decreased 6.7%.
“In both public and private, we are continuing to see downward pressure on pricing, although not dramatic drops,” said Kevin LaCroix, executive vice president of RT ProExec, a division of R-T Specialty L.L.C. in Beachwood, Ohio.
That is particularly true for publicly held companies' excess coverage, he said.
“The excess market is very aggressive, and there's ample capacity, which is driving rates down,” said Jennifer Sharkey, Boston-based area executive vice president of insurance and risk management at Arthur J. Gallagher & Co.'s management liability practice. “There are not as many insurers looking to write primary.”
Brian Dunphy, senior managing director of the management and professional risk group at Crystal & Company in New York, said while rates overall are down 3% to 6% on a blended basis, they are down 1% to 5% in primary layers and could be down 3% to 10% in excess layers.
In some cases, however, excess markets are walking away from certain risks that other markets are happily accepting, said Rob Yellen, New York-based executive vice president of Willis Towers Watson P.L.C.'s FINEX North America.
Meanwhile, “terms and conditions remain broad, and coverage enhancements can continue to be negotiated on most policies,” except for classes or companies that have claims issues, said Mr. LaCroix.
In some cases, observers say, excess insurers are dropping down and providing additional coverage in excess of sublimits within primary policies.
“They're trying to differentiate themselves,” Mr. Spore said of excess insurers. “There's very little turnover in the primary. There's much more turnover in excess, which is more commoditized.”
One area of continuing relative hardness is for life sciences companies. This includes pharmaceutical firms going into Phase III clinical trials, during which a drug or treatment is given to large groups of people to confirm its effectiveness, said Carolyn Polikoff, San Francisco-based corporate and executive protection practice leader at Woodruff-Sawyer & Co.
“If that's the only drug or treatment at that company, they can go out of business” if the trial is unsuccessful, while it could hurt the financials of firms that have other products as well, said Ms. Polikoff.
Big banks may also have some difficulty getting reduced D&O rates, although “that's probably not as bad as it used to be a couple of years ago,” said Ms. Polikoff. Some experts also cite energy companies as potentially challenging risks because of low oil prices affecting their financials.
However, Marc London, New York-based head of Beazley P.L.C.'s U.S. management liability team, said underwriters are looking “relatively favorably” even at “companies that would present as being difficult risks.”
How long will the ongoing soft D&O prices last?
“I've got to believe we're close to the bottom,” Mr. Wanat said.