Increased Capacity, Declining Demand Lead to Softer Pricing for D&O Insurance Segment

Source: AM Best | Published on May 18, 2023

D&O soft market

After two years of hard market conditions, the U.S. directors and officers (D&O) insurance market stabilized toward the end of 2022, as pricing increases moderated and renewal pricing was flat on average, according to new AM Best special report.

“But whether this relief will have staying power or whether prominent risk factors render this dramatic turnaround short-lived is unclear”

Heading into 2022, D&O liability coverage was one of the property/casualty lines most under pressure. The Best’s Special Report, titled, “US D&O: Increased Capacity, Declining Demand, Lead to Softer Pricing” notes that this came on the heels of higher rates and aggressive pricing increases in 2020 and 2021, which attracted additional capacity, much of it from surplus lines insurers.

For many years prior, competition had muted the efforts of D&O underwriters to address meaningfully the issues causing results to deteriorate. These matters included expanding risk exposures faced by corporate D&O, particularly in public sector, including social inflation; federal class action suits, litigation funding; scrutiny of ESG-related disclosures; and cyber risk.

The strong rate environment in 2020 and 2021 attracted new capital to the market from strong underwriters with new, creative approaches to public D&O underwriting. “However, current pricing could yield premiums that prove inadequate to cover potential claims owing to current economic risks, or evolving and expanding risks for which senior corporate officers could be held responsible,” said David Blades, associate director, AM Best.

According to the report, D&O pricing by the end of 2022 appeared to range from flat renewals to modest increases, less than 5% on average, offering a reprieve for risk managers and brokers. “But whether this relief will have staying power or whether prominent risk factors render this dramatic turnaround short-lived is unclear,” said Christopher Graham, senior industry analyst, AM Best. “Any ensuing softer pricing has not extended to unprofitable accounts with inherently more hazardous exposures.”

Blades will join two other industry experts in an upcoming webinar to discuss emerging trends in the D&O segment. The two additional panelists are Danny Hojnowski, senior vice president, head of U.S. D&O/E&O/Cyber, TransRe; and Uri Dallal, managing director, Aon. The complimentary webinar is scheduled for today, May 16, 2023, at 2 p.m. (EDT). To register, click here: AM Best’s Briefing – Directors & Officers Sector: Premiums Decrease For the First Time in a Decade .

To access the full copy of this report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=331641.