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D&O rates for private companies jump as much as 20%

As regulators become more stringent, investigations coverage capacity becomes limited

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Competition in the excess layers is limiting rate hikes for companies and organizations renewing their directors and officers liability insurance at midyear.

Rates range from flat to single-digit increases for accounts with good loss histories amid abundant capacity and improving terms and conditions, but private company D&O accounts are seeing rate hikes up to 20% amid limited capacity for investigations coverage as regulatory scrutiny increases.

New insurers entering the market and increased capacity among existing D&O insurers has ramped up competition in excess layers.

“It's a good time to be a buyer,” said Brian Wanat, New York-based national practice leader of Aon Risk Solutions' financial services group. “Between the pricing and the coverage, it's really starting to go in the buyers' direction.”

“Price is stabilizing, and most companies are going to see rates of flat to 5% increase as a rough average,” said Amy Baranoucky, Denver-based western region FINEX leader at Willis North America Inc. However, “some financial institutions might see slightly higher pricing,” which also depends on whether an organization's exposure has changed or if they have filed claims.

Competition remains intense in the excess level.

There are “too many people in the market and there are still new forms coming into the market,” said Brenda Shelly, New York-based managing director of Marsh L.L.C.'s FINPRO unit. At the same time, Side A coverage, which protects an organization's directors and officers, continues to get broader, “so you're getting a lot of impact from a rate perspective and also a broadening of the coverage perspective,” she said.

The private D&O market is very different from the public market, experts say.

Private company D&O rates are increasing up to 20%, Ms. Baranoucky said. In many cases, the business had been priced “exceptionally low,” while the exposure has changed for other companies as they have grown, she said.

“That still is a more challenging market,” Mr. Wanat said. “They were just so underpriced for so long that even though the marketplace has been driving rate increases for the last year or two or even three,” rates are “going up even double digits at this point,” he said. “We're just coming off such a low base from a dollar perspective, it's not all that much, even though it's double digit.”

Private company D&O rates are flat to positive across the marketplace, said Steve Boughal, New York-based vice president and chief underwriting officer of Hartford Financial Products, a unit of The Hartford Financial Services Group Inc. “That tends to be more of a primary market just because privately-held markets tend to buy lower limits for D&O coverage,” he said.

Public D&O rates range from a decrease of 1.5% to an increase of 2.5% in the primary layer, with the total program flat to down 5%, Ms. Shelly said.

A “hot button” with respect to terms and conditions is investigation coverage, Ms. Baranoucky said.

“Brokers have been pushing the insurers to try to broaden” policies' investigation coverage, but there is limited capacity for investigations, she said. “I think it will continue to be a focal point,” particularly for financial institutions because the government has more regulatory authority to police them, she said.

John Phelps, director of business risk solutions at Jacksonville, Florida-based Blue Cross & Blue Shield of Florida and a past RIMS president, said the current D&O market is stable.

“What's going to trigger changes, I think, is going to be some whopping large suits based on some new legal theory,” a capacity restriction due to catastrophic losses in other lines or a change in the reinsurance market, which is “usually the canary in the coal mine,” Mr. Phelps said.

“I think you're going to continue to see an aggressive market,” said Rodger Laurite, senior vice president and unit manager at Lockton Cos. L.L.C.'s financial services practice in Atlanta. “There's a lot of new capacity and a lot of insurers trying to write new business.”

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