In the first half of 2022, the Directors’ & Officers’ (D&O) liability insurance market has seen significant reductions in premium across the board and limits increasing for Gallagher clients, according to a report by the insurance brokerage firm.
In the report Gallagher’s analysts highlighted that despite signs of price stabilisation, a huge geopolitical incident, like the Russian invasion of Ukraine, can give rise to a shift in the market.
However, it noted that from a D&O perspective, it has proved to be a very specific issue for a small number of companies due to either having Russian exposure or having had sanctions
imposed upon them.
It added that as the current conditions of spiralling inflation will take time to surface and D&O claims are long tail by nature, the current pricing is likely to remain unaffected for now.
During H1 2022, according to the report, the life science market has seen growing competition, on both primary and excess layers. Additionally, further improvement in market conditions has seen carriers willing to entertain lower retentions and less restrictive coverage. A trend expected to continue.
The logistics and infrastructure sector continues to be affected by disrupted supply chains, changing consumer patterns and levels of demand, according to the report. Additionally, restrictions to free movement and economic growth caused by COVID-19 and Brexit have also had significant short and longer-term ramifications.
Handling of dangerous goods remains of concern to insurers. Environmental, Social, and Governance (ESG) requirements are firmly in focus, and it is now expected that companies demonstrate how they’re going to meet their ESG goals, the report highlighted.
Results and outlooks seem to start improving on the post-pandemic road to recovery for many companies active in the Natural Resources sector (as well as their D&O insurers).
Yet, analysts highlighted that the marketplace for risks in this sector is becoming increasingly challenging. ESG targets and guidelines have restricted certain companies from accessing the full spectrum of insurers (most notably coal, nuclear and oil and gas companies).
Additionally, the report highlighted that clients with people or assets in or related to Russia, Belarus and/or Ukraine are finding that insurers are closely assessing the impact of sanctions and their exposures.
Gallagher has also observed that post-pandemic, retail and hospitality companies are starting to experience big premium reductions and less restrictive coverage compared to the last two years.
Regarding the technology sector, analysts said that even though technology companies continue to be viewed as being on the higher end of the risk spectrum (unlike in 2020 and 2021), insurers are increasingly more willing to offer attractive coverage and pricing. A trend that Gallagher expects to continue for the rest of the year.
In its territory update, Gallagher said that, after a period of subdued underwriting, Australian D&O insurers are looking to trade again. Additionally, analysts noted that ESG risks in the region need particular care.
Canada has seen small increases on primary and low excess layers, this is expected to continue, however, competition is increasing. According to the report, the Canadian D&O market is not soft. It highlighted that there is still a focus on risk quality and that in-depth underwriting is common.
On the other hand, with relief coming largely in the form of premium reductions, the UK and Europe markets have softened significantly in H1 2022, according to the report.
However, the report also noted that difficult worldwide events, supply chain disruptions, rapid inflation and fluctuating commodity pricing are preventing the market from softening further.
The South African D&O marketplace continues to be diverse. Gallagher noted that local
underwriters “continue to shy away” from US-listed companies on a primary basis and have a limited appetite on an excess basis, adding that London remains the go-to-market for these clients.
Increasing competition for almost all sectors – leading to significant rate improvements – is forecasted for the US D&O marketplace for the rest of the year. Analysts observed that price increases decelerated throughout 2021, which carried into Q1 2022 with some prices flat, or even decreasing, at times.
“It’s generally felt that the hard market for D&O has been consigned to history in the US as results improve and the competition returns,” said Gallagher. It added: “We forecast that 2022 D&O rates will continue their decline and that many companies will see vast improvements in their renewal terms.”
Despite the prevailing optimism, Gallagher calls for caution, it said:
“The market is still fragile from prior adverse claims experience, and the backlog of open securities class action litigation is quite concerning. Furthermore, recent trends for more (and more costly) derivative actions as well as the interest in ESG issues could present new claims problems for the future.”
Analysts highlighted that there are several important items to consider for the remainder of the 2022 D&O Market. This includes that underwriters will put heavier emphasis on ESG issues, a deep dive into cyber security measures and cyber insurance, the impact of the pandemic and business stresses relating to economic uncertainty.
Finally the report said: “Therefore, you can expect that each client’s market cap and unique industry, loss experience, location, financial health, communication style and other individual account nuances will continue to have a substantial impact on their D&O renewals.”
