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D&O rate hikes expected to continue: Fitch


Substantial rate increases in the U.S. directors and officers liability sector will continue to hold through 2021, as underwriting results deteriorate despite record premium growth, Fitch Ratings Inc. said in a report Wednesday.

D&O liability premiums increased by 40% in 2020 and by 20% in 2019, but underwriting losses are expected to continue over the near term, Fitch said.

After several years of flat to declining revenue growth, D&O direct written premium volume increased to $10.7 billion in 2020, the report said.

A 67% cumulative increase in market premiums over the past two years has failed to lead to a turnaround in underwriting results in D&O.

“The market has been disrupted by a confluence of challenging economic, regulatory, legal, investment and social factors since the pandemic’s onset, leading to a worsening claims environment,” Fitch said.

The industry direct incurred loss and defense and cost-containment ratio declined modestly to 74% in 2020 and averaged 75% from 2017 to 2020 reflecting the deterioration in results, Fitch said. This compared to a 61% average from 2011 to 2016.

Years of competitive pricing and ongoing increases in multimillion-dollar jury verdicts and claims settlements as well as growing defense-related costs have had a negative impact on underwriting performance, Fitch said.

From 2017 to 2020, D&O reported a direct combined ratio average of 107%.

The acceleration in rate increases also reflects changes in risk appetite among many D&O insurers, with shifts in coverage terms and policy limits, making it harder to place larger programs, Fitch said.

Willis Towers Watson PLC projects increases in primary public company D&O to continue to increase by 10% to 40% in 2021, but excess layers could move even higher by 15% to 65%, the report said.

Pandemic-related D&O claims losses will likely take several years to fully measure and resolve, Fitch said.

Allegations may arise for leadership of companies experiencing shareholder value declines or insolvencies from the pandemic’s economic fallout, Fitch said. Claims may also be pursued against organizations that failed to protect employees or customers from exposure to the virus or serious illness.

Companies that create protective products or vaccines to prevent the virus or treatments that prove ineffective also face new D&O exposures, the report said.

More insurance and risk management news on the coronavirus crisis here.







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