The insurance market underwriting cycle is turning unfavorable in many United States commercial market segments, including directors and officers (D&O) liability insurance, New York City-based Fitch Ratings says.

Premium rates in property lines have been declining for some time in response to a lack of large loss events. Fitch said it expects that competitive forces will likely drive prices lower in more casualty and liability lines, in part because of past underwriting success.

Quarterly D&O Pricing Index report

The latest Quarterly D&O Pricing Index report compiled by Aon Risk Solutions indicates that pricing on D&O programs that renewed in the third quarters of both 2015 and 2014 is 10.1% lower than pricing on the comparable group a year ago. Willis's recent Marketplace Realities 2016 report indicates that public company and financial institution company D&O renewal rates are projected to be flat to slightly down in 2016. Excess rates are projected to fall by 5% to 15% next year. However, weaker-performing privately held and nonprofit businesses are still seeing rate increases.

D&O underwriters have benefited from relatively stable claims trends have in recent years, particularly regarding claims relating to securities class action filings. Underwriting performance slightly deteriorated in 2015 with a reported statutory direct loss ratio of 51% for the industry at Sept. 30, compared with 49% in full year 2014. Considerable further weakening in underwriting performance would need to be experienced for a shift toward positive D&O premium rate movement, Fitch said.

Recent merger activity in the property/casualty industry will have a meaningful effect on D&O market composition, but is unlikely to influence near-term pricing momentum. New York City-based multinational insurance giant American International Group's perennial market leader position will narrow as Zurich-based Ace Ltd.’s $28.3 billion acquisition of Warren, N.J.-based Chubb closes.

Still competitive D&O market

The recently completed $7.5 billion acquisition of Houston-based HCC Insurance Holdings by Tokyo-based Tokio Marine and Dublin-based XL Group’s $4.2 billion acquisition of Bermuda-based Catlin are also promoting a more concentrated, but still competitive, D&O marketplace with ample underwriting capacity, Fitch said.

Based on nine months 2015 direct premiums, 50% of the market is written within four companies, with pro forma D&O market share split approximately:

17% — AIG.
14% — Ace/Chubb.
10% — XL Catlin.
9% — Tokio Marine U.S.

Newly merged entities' success in integrating and retaining business within a larger portfolio will influence market competition going forward. Smaller underwriters may become more active in seeking growth by attracting displaced accounts or underwriters from recent transactions, Fitch said.

Special Reports /

Fitch: D&O insurance rate declines show softness in P&C market

Related Stories

Recommended For You