Rate hikes exceeding 10% per quarter fuelled direct premium growth of 35% to $14.6 billion

With significant growth in the segment’s top line premium and profitability on a direct basis, results in the US directors and officers (D&O) insurance market in 2021 were the best insurers in the segment have recorded since 2014, according AM Best.

The rating agency states that consistent, aggregate pricing increases by D&O writersreportedly exceeded 10% per quarterfueled direct premium growth of 35% to $14.6 billion.

“Excess capacity has been a primary contributor of the disparity between rates and the pricing of risk exposures, even as the loss ratio crept upward,” said Christopher Graham, senior industry analyst, industry research and analytics, AM Best.

“With results worsening because of factors such as social inflation, litigation funding, environmental, social and governance concerns and cyber-related claims, insurers have pushed aggressively for elevated premiums upon renewal, as well as higher self-insured retentions and more-restrictive terms and conditions.”

The report notes that further improvement in the market depends largely on whether insurers remain disciplined and focused on meeting rate adequacy needs and offsetting claims costs that continue to rise.

COVID impact not yet clear

It also warns the full effect of the pandemic on D&O and on other professional or management liability lines will not be known for some time.

COVID-19-related D&O claims may be lagging occurrences or actions, as the pandemic continues to pose challenges for companies and the economy. As a result, the increase in premium and its impact on the line’s direct profitability may not reflect the actual depth and complexity of the challenges D&O insurers still face.

Additionally, with fewer legal proceedings reaching trial, and court cases and litigation delayed amid the pandemic, the slowdown in the increase of defense and cost containment expenses, another driver of the positive results, may be temporary.

“The improvement in results in 2021 has to be viewed as a possible aberration, rather than the start of a trend—at least until full-year 2022 results are available,” said David Blades, associate director, industry research and analytics, AM Best.

“The D&O line’s bottom-line profitability in 2022 will indicate whether carriers’ actions were enough to generate true price adequacy and serve as a springboard for sustainable improvement.

“At the same time, with balance sheets throughout the U.S. property/casualty market remaining strong and available capital from participants already entrenched in the D&O segment, as well as external capital looking favorably on current pricing levels, perhaps a new, more-competitive underwriting cycle may be starting.”