D&O premiums increase by 38.5% in 2021; loss ratio falls to multi-year low

Directors and officers insurance saw another year of strong growth in 2021, with premiums nearly doubling from 2019.

The U.S. D&O hard market peaked in 2021, said Priya Huskins, senior vice president of executive responsibility at Woodruff Sawyer. The market was supported by the confluence of some major D&O settlements, a number of unresolved open D&O insurance cases and a general sense of uncertainty around late-stage private company litigation, among others. Huskins said in an interview.

Insurers see relief around IPOs

Direct premiums written for the D&O business line grew 38.5% year-over-year across the industry in 2021, according to data compiled by S&P Global Market Intelligence.

In the past, litigation against IPOs was a particularly difficult area for insurers because such entities tended to be sued more often than mature public companies in state and federal courts, Huskins said. However, a 2020 court ruling in Delaware opened the door for companies to limit claims against them to federal court alone.

In 2021, other state courts recognized provisions that expelled cases from state courts, causing the landscape of new public companies to completely change and “dramatically improve,” Huskins said.

Premiums are skyrocketing

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All but two of the largest U.S. D&O insurers reported double-digit premium increases for the line of business in 2021.

For at least the second consecutive year, Axa SA, Chubb Ltd. and American International Group Inc. were the top underwriters of D&O insurance, controlling 15.3%, 9.1% and 8.1% of the US market, respectively, in 2021.

Axa saw its written premiums increase by 57.2% during 2021, with direct written premiums totaling approximately $2.28 billion.

Arch Capital Group Ltd., which owns 3.2% of the U.S. D&O market, saw its direct written premiums rise 87.1% in 2021, the biggest increase among the 20 largest insurers. WR Berkley Corp. controls 4.0% of the overall market share and recorded the second highest increase in written premiums last year at 70.3%.

Loss ratios decline

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The direct loss to the US D&O market The ratio fell to 54.6% in 2021, which is a five-year low. The decline can be attributed to the strong year-over-year increase in direct earned premiums. Direct premiums earned by the industry jumped 44% in 2021 to $12.72 billion from $8.84 billion the previous year. Losses incurred directly rose about 30% to $6.94 billion.

Several years of rapid premium growth for D&O insurance have resulted in a “significant decline” in direct loss ratios in 2021, Fitch Ratings analyst James Auden wrote in a note.

Although D&O underwriters faced an increase in claims arising from securities class action lawsuits in the years preceding the pandemic, changes in economic and judicial activity in response to the pandemic resulted in a decrease of more than 50%. filings in 2021 compared to 2019. Class action lawsuits could increase further in the event of future recessions that lead to increased corporate insolvencies and defaults or a sharp drop in the stock market, Auden said.

Liberty Mutual Insurance Co. confirmed an inaccuracy in its latest NAIC filing where its direct losses paid were blank and there were no numbers for direct defense and cost containment. It was excluded from the loss, direct defense and cost containment ratio calculations.

Sallie R. Loera