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The ongoing momentum toward higher rates, less capacity and more retentions in the directors and officers liability insurance market continued and even increased in intensity during the Jan. 1 renewals, experts say.
While there is no immediate end in sight to the challenging environment, new capital has entered the market and several experienced D&O underwriters have switched insurers, which may signal more capacity entering in the sector, they say.
The market continues to be as challenging as it was in the first part of last year, said Sarah Downey, New York-based FINPRO and D&O product leader for Marsh USA Inc.
“We’re continuing to see insurers cutting their capacity, such as by putting up lower limits per client, and we’re seeing continued increases in pricing,” she said.
Renewals in each of the last four quarters have become successively harder to place, said Brian Dunphy, senior vice president and managing director at Alliant Insurance Services Inc. in New York. “It was a very, very taxing year.”
Underwriters raised retentions, sometimes by three times year-over-year, and capacity has been a continuing issue, with only the “best in class” getting more than $15 million, Mr. Dunphy said.
In general, publicly held companies are facing 15% to 25% increases and private companies 5% to 15%, but others “are continuing to see increases beyond that range,” including financially troubled companies hit by the pandemic, life science and high-tech companies, and those with recent claims experience, said Kevin LaCroix, executive vice president in Beachwood, Ohio, for RT ProExec, a division of R-T Specialty LLC.
Mr. LaCroix said that while overall rates were lower for private companies, very large companies — including unicorns, which are startup companies with valuations of at least $1 billion — are seeing price hikes on the same scale as public companies.
Rate hikes are “going through the roof,” said Peter Taffae, a D&O liability insurance expert at Los Angeles-based wholesale brokerage Executive Perils Inc.
Even for “just a vanilla” risk, insurers are “not going to put up more than $10 million, and the $10 million will cost you 30% more” than the amount charged for $15 million in coverage last year, he said.
In addition, if an insurance program involves a public company initial public offering, “you’re probably not going to get more than $2 million” from any one insurer, and it will cost $500,000, he said. Rate hikes for internet or biotech companies are even higher, while retentions “are getting huge,” Mr. Taffae said.
“The demand is far greater than the supply, and it’s all ‘take it or leave it,’” he said.
No immediate end is in sight, observers say. It may be the end of the second quarter or the beginning of the third quarter before there is a change, Mr. LaCroix said.
The D&O market will continue to be challenging at least through the beginning of 2021, Ms. Downey said.
“I don’t see any letup at this point,” with the “best case” a change in the latter part of the third quarter, Mr. Dunphy said.
While there are indications that policyholders can expect increases in the near term, there are some signs that the market is stabilizing, said Rob Yellen, New York-based executive vice president of Willis Towers Watson PLC’s FINEX North America practice.
While it is not “puppies and rainbows, it’s not all doom and gloom,” he said.
Dan Fortin, president, financial lines for QBE North America, the New York-based unit of QBE Insurance Group Ltd., said that while rates are increasing, they are doing so at a much slower pace than they had been.
Fresh capital entering the market could change its dynamics, experts say.
Relatively new underwriters have entered the market. These include New York-based managing general underwriter Bowhead Specialty Inc., and Huntington, New York-based general underwriter Balance Partners Inc., which has hired Greg Flood, formerly president of professional and management liability at Liberty Mutual Insurance Group unit IronPro. In addition, Omaha, Nebraska- based Applied Underwriters Inc. has launched a D&O division in the U.S. and hired former American International Group Inc. executive Stephen McGill to head the unit.
There has also been significant movement among D&O executives, which could indicate more capacity entering the market. For instance, QBE hired Todd Greeley as well as Mr. Fortin from Berkshire Hathaway Special Insurance Inc. to lead its financial lines business, and Berkshire hired former AIG underwriter Brady Head as senior vice president and product line officer for directors and officers liability insurance in North America.
QBE, for instance, will likely be more active in the sector than it has been in the past, Mr. Fortin said.
The pandemic-induced surge in bankruptcy filings is leading to more demands for information from directors and officers liability underwriters, experts say.