U.S. D&O Losses Hit Lloyds Results

London Editor

London

U.S. directors and officers business has been very egalitarian in the losses it has wreaked on underwritersno market has been left unscathed. Indeed, those underwriters that have limited their exposures to non-U.S. business have had much more favorable loss ratios.

The Lloyds experience demonstrates the situation aptly. Figures reveal a profitable book for D&O business written for companies with no U.S. exposure and quite the reverse for the U.S. book.

In 1997, all of the D&O business written by the Lloyds market generated nearly 150 million worth of premium, said Chris Hill, underwriter at Syndicate 33, which is managed by Hiscox Syndicates Ltd.

The loss ratio on the D&O business that has developed since 1997 is close to 190 percent, he said, which is calculated on a net basis (or after brokers commissions).

“If you look at the 1998 year of account, the amount of premium that came in from pure D&O was 166.9 million, and the loss ratio on a net basis is just over 200 percent,” he said.

“Hiscox estimates that the loss ratio for pure European business, with no U.S. exposure, in 1998 is around 10-15 percent maximum on a net basis,” he said. He attributed the better European business result to the fact that there is no active plaintiffs bar within Europe and the claimant is liable for legal fees on both sides if the claimant loses.

“This leads me to conclude that the U.S. market brought in excess of a 250 percent loss ratio for the 1998 year of account,” he said.

The 1999 year of account generated almost 212 million of D&O premium written on a net basis, he said, noting that the loss ratio developed thus far for that year is 81.1 percent, he said. (Lloyds operates three years in arrears so the last reported year of account was 1998.)

He said the developing figures for 1999 indicate some improvements on the horizon “because when you look at the loss development of 1998, the loss ratio was 104.5 percent after the same time period. This, Mr. Hill said, indicates that “rates are certainly starting to edge up a lot with underwriters looking at their cost of capital and reinsurance costs, and going back and looking at coverage terms and conditions,” he said.

Martin Beagley, executive director of the global financial and executive risk practice of Willis Ltd. in London, said there are quite a few Lloyds facilities for U.K. or European businesses that have loss ratios of less than 20 percent.

He admitted these facilities have been fortunate because there are a number of recent D&O losses in the United Kingdom, Germany and France. However, the more positive D&O experience in Europe is requiring slightly less tightening of terms and lower rate increases than is being seen by U.S. companies or companies with U.S. exposures, he said.

Indeed, he noted that U.K. and European companies with no U.S. exposure may experience rate increases of five, 10 or 15 percent, compared with top-end rate increases of 300-400 percent for companies with U.S. D&O exposures.

All D&O underwriters, even those exposed to U.S. risks, made money for most of the past five or six years, he said. “Had it not been for the dot-com crash and broadening of cover, they would have continued making money,” he said.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, December 3, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

Contact Webmaster

Special Reports /

U.S. D&O Losses Hit Lloyds Results

Related Stories

Recommended For You