Fitch: D&O Insurance Pricing Pressure to Dampen Performance

CHICAGO--(BUSINESS WIRE)-- Market conditions are evolving in the U.S. directors and officers (D&O) liability insurance market. Merger and acquisition (M&A) activity in 2015 has facilitated greater market concentration, and pricing pressure will likely challenge profitability going forward, according to a new report from Fitch Ratings.

Three of the largest D&O writers were involved in significant acquisitions recently, particularly the creation of Chubb Limited (Chubb) through Ace Limited's purchase of The Chubb Corporation. The largest D&O writers based on pro forma 2015 statutory direct written premiums are: American International Group, Inc. (AIG) with 16.7% of industry premiums; Chubb with 14.4%; and XL Catlin Ltd (XL) with 10.2%.

"D&O insurance pricing fared better than many other commercial market segments in recent years," said James Auden, Managing Director Fitch Ratings. "However, past profitability and strong underwriting capacity are promoting pricing competition that fosters less favorable underwriting results going forward."

D&O insurance is a small specialty segment of the property/casualty (P/C) insurance market, representing approximately 1% of total industry direct premiums. However, this line has great notoriety relative to its size. Many large D&O claims arise from incidents that receive wide media coverage, including corporate insolvencies, large stock price declines, financial reporting irregularities or regulatory investigations.

"D&O is more volatile than other property/casualty product segments as policy limits and individual claim costs are relatively large and the threat of new lawsuits or claims exposures is constantly looming," said Auden.

Key sources of claims relate to securities litigation and regulatory actions and settlements. Claims based on objections to M&A actions are diminishing. The industry D&O direct loss ratio rose by 8 points to 57% in 2015. Results in 2016 will determine whether this change in results is representative of a new trend in performance or an aberration. Loss reserve development experience significantly flattened in calendar year 2015, which may also portend a new trend that will unfavorably affect earnings going forward.

See the full report 'U.S. Directors and Officers Liability Insurance (Market Update 2015)' by clicking on the link.

Additional information is available at 'www.fitchratings.com'.

U.S. Directors and Officers Liability Insurance 2016 (Recent M&A Activity Boosts Market Concentration)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=879907

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View source version on businesswire.com: http://www.businesswire.com/news/home/20160412006625/en/

Fitch Ratings
James B. Auden, CFA
Managing Director
+1-312-368-3146
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Gerald Glombicki, CPA
Director
+1-312-606-2354
or
Jeremy Graczyk
Associate Director
+1-312-368-3208
or
Media Relations:
Hannah James, New York, + 1 646-582-4947
Email: [email protected]

Source: Fitch Ratings

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