Directors and officers liability insurance rates are still decreasing but at a more moderate rate, experts say.

However, the uncertain state of the economy and the potential impact of a new Nevada law are among the issues causing some concern, they say.

Observers say interrelated factors influencing the current market include a lower number of publicly held companies; fewer initial public offerings; less mergers and acquisitions activity; a significant decline in SPAC and deSPAC activity, and less capacity entering the D&O sector.

USI Insurance Services LLC is forecasting rate decreases of 15% to 20% for mainstream D&O business, “with more of that coming out of excess than the primary,” said Andrew Doherty, New York-based national executive and professional risk solutions practice leader for the brokerage.

Teresa Milano, Boston-based vice president, management liability, with Woodruff Sawyer & Co. said the market is “continuing to see very competitive pricing as well as coverage enhancements,” with 10% to 40% rate decreases and a “downward trend in retention options.” 

Larry Fine, New York-based management liability coverage leader for Willis Towers Watson PLC, said the biggest rate reductions are for companies that had initial public offerings in the last few years, and businesses such as airlines and retailers that were “penalized a bit” during the COVID-19 pandemic.

Mr. Fine said one trend he is seeing in the D&O sector is instances where insurers “ventilate” layers of business, taking for instance, the first $10 million excess of $10 million layer, then the excess of $30 million layer, rather than assuming sequential layers. “Many carriers have found that to be useful in de-risking their books,” he said.

Rachelle Best, president of RT ProExec, a division of R-T Specialty LLC, in Bloomfield, Connecticut, said there is less competition for cannabis and cryptocurrency risks and for certain biopharmaceutical companies.

Banking is also an exception to the general trend.

Matthew McLellan, Washington-based managing director and D&O product leader for Marsh LLC, said underwriters are closely scrutinizing bank submissions in light of the Federal Deposit Insurance Corp’s takeover of Silicon Valley Bank in Santa Clara, California, and Signature Bank, in New York earlier this year.

“Underwriters are asking a lot more questions” than they are for other lines of business, Mr. McLellan said. “We’re not seeing the type of decreases or corrections that we’re seeing” in the rest of the market, although it is still competitive, he said.

Mr. Fine said rates in the financial institutions segment are flat to down 10%, compared with down 10% to 20% for the rest of the commercial market.

Few of the estimated 30 new entrants are expected to leave the D&O market, despite the increasing competition, observers say.

There has to be some claims activity before it can be determined whether the new entrants will continue, exit or consolidate, said Joe Class, Chicago-based vice president in Lockton Cos. LLC’s financial services practice.

“Rates will continue to be down for the balance of the year,” although the decreases may moderate, said Tim Fletcher, Los Angeles-based CEO of Aon PLC’s financial services group in the United States.

“We will be getting close to the bottom of the market cycle in the year to 18 months,” said Mike Tomasulo, senior managing partner and management liability national practice leader for BRP in New York.

He said insurers “are starting to draw lines in the sand and declining some deals rather than follow the decreases all the way down.”

Patrick Whalen, New York-based underwriter on Beazley PLC’s executive risk team, said certain industries and clients that are seeing rates drop below 2018 and 2019 numbers may see increases, “but it’s more likely we’ll see rates flatten in the near future.”

Meanwhile, there are worries about the economy. “There’s a lot of risk out there,” including inflation, a volatile equity market and managing companies in an uncertain environment, Mr. Fletcher said.

There are concerns also about regional banks, the supply chain, cryptocurrency and block chains, he said.

Mr. Doherty said,  “I still think that cyber-related events can ultimately lead to a D&O claim,” and cyber is “still up there” as a board-level risk.

Another potential area of concern is ESG risks, which are an “evolving issue,” he said.

In June, Nevada Governor Joe Lombardo signed Assembly Bill 398, which prohibits insurers from issuing policies that reduce the limit of liability by the costs of defense. 

The law caught many in the industry by surprise, experts say.  Some are unclear about its scope, “so it’s causing concern and confusion, and some carriers are reaching out to Nevada insureds to discuss it,” Mr. Fine said.

Possibilities to address the law include extending existing policies or accelerating the renewal process in advance of its Oct. 1 implementation, he said.