Any reacceleration in D&O pricing will probably remain limited to financial institutions as bank-related D&O claim settlements will likely be prolonged – despite claims being manageable – KBW analyst following a recent call with Kevin LaCroix, RT ProExec EVP, a division of RT Specialty.
Analysts noted that D&O rates, unlike most other specialty P&C lines, have recently been declining, reflecting abundant capital from legacy carriers and several newer entrants.
“D&O claims are almost inevitable, but claim settlement will probably be slow: Mr. LaCroix expects D&O claim payouts to be protracted and heavily litigated, with defences against any FDIC breach of fiduciary duty claims likely focusing on the ‘insured-versus-insured’ exclusion (initially designed to prevent insured collusion and corporate infighting) that precludes coverage for an insured’s claims (in this case, the FDIC, which stepped in as a receiver) against another entity insured under the same policy,” analysts noted.
During the call, LaCroix also noted that past D&O claims against failed banks were generally litigated, with defence issues including regulatory exclusions (which explicitly exclude claims made by the FDIC and are typically included in policies during hard markets), claims-made policy forms, and the presence of parallel securities litigation and parent company bankruptcy proceedings – which probably are more specifically relevant to SIVB and SBNY.
The EVP added that D&O claims rarely involve accusations of bad faith, unlike in medical malpractice or excess casualty lines.
“Unsurprisingly, the D&O claims filed to date have been class action lawsuits and the FDIC’s breach of fiduciary duty claims against Credit Suisse, SIVB, and SBNY executives,” KBW analysts explained.
They added: “Barring more bank closures, we expect D&O claims (which should impact 1Q23 results, at least as IBNR) to be very manageable, primarily since most carriers’ lines sizes have declined materially over the last three or four years, and because the expected litigation process will likely be prolonged.”
Additionally, LaCroix reported no obvious relationship between an individual bank’s size (e.g., deposits, assets, market capitalization, etc.) and its D&O policy limits. And noted that bigger financial institutions typically buy D&O coverage (and often adjacent coverages, like errors and omissions (E&O) and/or bonds) from bigger insurers, with smaller D&O underwriters often focusing on smaller niches like community banks.
According to KBW, many of the top-40 domestic D&O insurers likely have some exposure to financial institutions, reflecting the sector’s prominence within the overall D&O marketplace and the materially syndicated market.