What’s happening to D&O?
Directors’ & Officers’ is a big topic as far as members are concerned, to judge by the many hundreds of times that they have downloaded the AIRMIC D&O guide. This is hardly surprising given the shocks at the start of the decade, when some firms found their cost of coverage rising by as much as 600%.
Right now, buyers have benefited from a softening of rates, though to nothing like previous levels.This has caused some underwriters to try to talk up the market. In a recent editorial headed “Time for D&O sector to harden”, Insurance Day complained that prices were at “rock bottom”.
“You have to question the long-term health of this line of business when conditions have got as soft as this,” it went on. Well, according to the experts we consulted, the D&O market will remain soft at least for the time being.There’s strong competition for business out there, suggesting that it remains an attractive line for underwriters. AIRMIC’s technical director Paul Hopkin – who produced the D&O Guide in 2003, since updated last year – has some sympathy for these sentiments but takes them with a pinch of salt.
“Prices have come down, but we don’t believe they should ever have gone as high as they did,” he says. John Batch, senior vice-president at FINPRO, the arm of Marsh that handles D&O, does not see any reason for across-the-board price increases.
“The D&O market is soft, and firms are generally seeing double digit rate reductions.The exception will be risks with a direct sub-prime exposure where an increased level of underwriting information, localised hardening and reduced capacity are evident.
“Insurers are still actively competing with each other, competing on rates and launching new broader policy wordings,” he says.
James Jackson of Willis agrees that there should be further drops in rates:“Rates are expected to continue falling during 2008 to the benefit of clients. New wordings are anticipated broadening terms and increasing the competition between insurers.Any impact from the US sub-prime crisis has yet to be seen in the D&O market although the future is uncertain for D&O rates for financial institutions while the number of US sub-prime related claims continue to increase.” “Competition from D&O insurers to grow their books and to evolve the product means a much wider appetite by insurers than we have probably ever seen,” adds Adrian Jenner of HSBC Insurance Brokers.“The UK D&O market has 30 insurers offering compehensive cover at low costs.” Paul Hopkin, meanwhile, acknowledges that it is in the interests of buyers for the market to remain profitable. “It would be potentially quite serious if there were lack of capacity caused by lack of profitability, but I don’t think we’re there yet.
“There was an over-reaction to Worldcom, Parmalat and other claims. Five or six years ago there were some very big claims coming through and, in light of Sarbanes Oxley, there was a feeling that the landscape was being changed. “That just hasn’t happened and there’s been very few big claims of recent, which is one reason why it [D&O] is attractive to new capacity.”
And James Jackson believes that D&O insurers are still doing alright.“With the benign claims environment in the
“This benign claims environment is also seen for global D&O, although as mentioned above US subprime claims could make underwriters who specialise in writing D&O for financial institutions start to incur losses.” “There is no reason for rates to harden in the short term,” says John Batch “particularly for risks not exposed to
