U.K. Financial Institutions D&O Mixed Results On Renewal

NU Online News Service, Sept. 10, 1:26 p.m. EDT

The United States and the United Kingdom are witnessing average rate increases on directors and officers liability insurance of 15 percent, but U.K. renewals are exhibiting mixed results, according to Aon.

Earlier this week, the Chicago-based insurance broker released a quarterly market review of the U.S. insurance market based on its internal proprietary information.

That report found D&O rates have increased in two of the past three quarters by more than 4 percent in the second quarter of this year and more than 3 percent in the fourth quarter of 2008.

However, financial institutions were hit hard with double digit increases over the past three quarters, averaging close to 15 percent in the second quarter of 2009.

In a separate review of the market in the United Kingdom, Aon said rates have risen similarly for financial institutions there during the second quarter, but renewals are mixed and "will continue to depend on specific risk factors and financial performance."

The increases, Aon continued, are reflective of the current economic turmoil that "means rates are increasing significantly, capacity is constricting and coverage terms are tightening." Other sectors were flat.

However, in the United Kingdom D&O capacity remains abundant for the majority of buyers and they can find bargain so long as they are "prepared to shop around."

Aon said that the better rates are more available in the excess market than the primary market as new entrants are "fighting the established players for market share."

In one sector, automotive, pricing in the United States is up nearly 44 percent while in the United Kingdom, which has not suffered the bankruptcies seen in the United States, the rate for D&O is flat "with premium reductions available in certain instances."

"There has been a definite rise in U.K. claims activity but mostly confined to the primary layer of programs," said Adam Codrington, executive director at Aon's financial services group in a statement.

"We anticipate that this will lead to frictional erosion of margin for primary players, while excess players continue to be relatively unencumbered by non [financial institution] related claims. As such, we are seeing attempts to increase premiums in many incidents, but they are being held up by competition in the market," Mr. Codrington added.