NU Online News Service, April 25, 2:51 p.m. EDT
Rates for primary directors and officers liability-insurance programs for public companies during the first quarter increased an average of nearly 1.5 percent after decreasing an average of about 4.3 percent in 2011.
However, the excess D&O market remains soft, meaning rates for a total program—primary and excess layers—are not increasing at the same pace, according findings by Marsh Global Analytics.
Lou Ann Layton, practice leader at Marsh's Financial and Professional Liability Practice (FINPRO), says the effect of high-severity securities class-action lawsuits cannot be dismissed as a reason for insurers seeking rate, as settlement amounts continue to grow.
In addition, carriers are "getting hit in all areas" by smaller D&O claims, she says, and more carriers are "trying to legitimize their need for rate." For instance, claims involving mergers and acquisitions may not carry the same severity from large settlements, but frequency has become a factor in "hitting the primary hard."
Observations by industry executives and insiders agree with the data. The frequency of smaller cases is increasing, slicing away at policy limits.
The median rate for primary D&O was flat in the first quarter, compared to a median decrease of about 3.8 percent in 2011's first quarter.
Marsh says 38 percent of primary D&O policies saw a rate increase at renewal in the first quarter, compared to 15.4 percent in 2011. About 32 percent of primary policies were renewed at a flat rate during the first three months this year, compared to 22.8 percent a year ago.
However, average and median rates may not tell the whole story, saysLayton, because the data "does not say what the client did to achieve the rate." In other words, the statistics do not show what a public company could have gotten if it had shopped.
For a variety of reasons, convenience among them, companies stick with the insurer they have when it may have been possible to save money, saysLayton.
Overall, the D&O market has plenty of capacity and remains relatively competitive, says Marsh.Laytonsays some carriers are less affected by trends than others because of what companies they write, or due to where they sit in the risk distribution tower.
Excess D&O is somewhat offsetting upward rate trends in the primary layer, so total program rates are raising at a slower pace. Competition in the excess layer remains heavy, saysLayton.
Nevertheless, while nearly four of five clients got a rate decrease in total program rates in 2011, March says about 54 percent achieved the same during the first quarter this year.
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