Fundamental issues persist in the U.S. directors’ and officers’ insurance market despite pricing momentum

OLDWICK, New Jersey, March 01, 2022–(BUSINESS WIRE)–Rate hikes have led to substantial growth in directors and officers (D&O) insurance premiums in the United States, but loss ratios have yet to improve, according to a new AM Best report.

In his Best Market Segment Report, titled “D&O Insurance: Fundamental Problems Persist Despite Pricing”, AM Best notes that in the first three quarters of 2021, the growth rate of D&O direct premiums over the previous year is comparable to the growth observed in 2020 compared to 2019. The projected direct premium written for 2021, based on an actual premium of $14.6 billion as of September 30, 2021, is more than double that recorded in 2018, demonstrating considerable momentum for the line. Nevertheless, the direct loss ratio deteriorated even though premiums increased by an average of 15% over the last six quarters up to the third quarter of 2021.

According to the report, rising costs are not limited to losses. Defense and cost containment expenditures for A&D liability, primarily for legal fees, are also increasing. The high increases in D&O premiums in recent years are due to emerging risks, as well as the growing influence of social media. Market watchers have noted that D&O trends reflect the growth of what is being called a new class of global litigation-funding investment, epitomized by the group’s securities class action funding. Additional risk factors, such as sexual misconduct lawsuits, discrimination cases, and failure to disclose or address climate risks, all contribute to higher lawsuits, settlements, and D&O payouts, and result in higher premiums. high.

“The effects of rising insurance claims costs are not only felt by insurers in relation to their claims reimbursements and loss ratios, but also by policyholders and the amount they pay for coverage. This is a particularly acute problem for large public companies,” said Christopher Graham, senior industry analyst, industry research and analysis, AM Best.

The report says the pace of securities litigation could increase in 2022, with plaintiffs focusing on special purpose acquisition company (SPAC) transactions, cryptocurrency or event-driven lawsuits. In recent years, SPACs have become an important part of the financial transaction market, as an alternative to the traditional initial public offering.

“The growth of SPAC-related litigation has also played a role in D&O insurance coverage and cost,” said David Blades, associate director, industry research and analysis, AM Best. “The number of insurers in the market that are willing to underwrite D&O cover for SPACs has been somewhat scarce – and less cover and higher costs leave the management of SPACs and the resulting entity at risk of be insufficiently protected against liability risks.

To access the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=317831.

For a video discussion of this report with Graham and Blades, please visit http://www.ambest.com/v.asp?v=ambdando322.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in more than 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

Copyright © 2022 by AM Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

See the source version on businesswire.com: https://www.businesswire.com/news/home/20220301005796/en/

contacts

Christopher Graham
Senior Industry Analyst, Industry
Research and analytics
+1 908 439 2200 ext. 5743
[email protected]

David Blades
Associate Director, Industry
R esearch and Analytics
+1 908 439 2200 ext. 5422
[email protected]

Christopher Sharkey
Manager, Public Relations
+1 908 439 2200 ext. 5159
[email protected]

Jim Peavy
Director, Communications
+1 908 439 2200 ext. 5644
[email protected]

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