US D&O insurance softens as capacity floods into ever smaller space

The US directors and officers (D&O) insurance market should soften for the remainder of 2022 as competition continues to rush to a segment where capital market insurable events are few and loss ratios overall have improved,  Gallagher analysts have said in a market update.

“The forecast for the state of the US D&O marketplace for the rest of 2022 is one of increasing competition for almost all sectors – leading to significant rate improvements,” Gallagher wrote.

“We forecast that 2022 D&O rates will continue their decline and that many companies will see vast improvements in their renewal terms.” Select sub-sectors, most notably life sciences, could see “healthy decreases” upwards of 20%.

Price increases had already been decelerating throughout 2021 and into early 2022 when some of the best accounts first started to see flat or decreased renewal rates. And covid-era differentiation of best accounts from the rest is now collapsing.

Loss ratios have largely improved. Amongst drivers, note lower securities class action frequency, stabilised severity (2% settlement cost inflation) and core case dismissal rates holding near 50%.

The rise in competing capacity is not only new market entrants, but existing players forced to hunt for business more aggressively as capital market deals are down.

Despite the long-tail nature of the business, inflation has yet to make its mark on pricing, Gallagher believes.

“As the current conditions of spiralling inflation will take time to surface and D&O claims are long tail by nature, the pricing we are seeing right now is likely to remain unaffected for now,” authors wrote.

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