OLDWICK, N.J.--(BUSINESS WIRE)--Greater competition, an increase in federal securities class action lawsuits and an evolving cyber risk landscape have pressured U.S. directors’ and officers’ (D&O) insurers, according to a new A.M. Best report.
The Best’s Market Segment Report, titled, “Intense Competition and Tough Legal Environment Pressure D&O Insurers,” states that from 2011 to 2015, D&O writers had experienced hard-market conditions and most insurers reported rate increases; however, in 2016, D&O rates began to flatten and that trend continued through third-quarter 2017. Through third-quarter 2017, direct premiums written (DPW) declined year-over-year by 1.5% and incurred losses increased 5.6%.
In addition, lawsuits and related claim costs are increasing, causing underwriting profitability to deteriorate further. Federal securities class action lawsuits have spiked since 2014, when there were 187 lawsuits, to 386 lawsuits in the first three quarters of 2017. With many claims attributable to mergers and acquisitions, insurers increasingly are updating policy language so that pre-close and post-close wrongful acts are covered under the run-off policy rather than the going-forward policy.
The uptake for cyber insurance policies increased in 2016 with cyber DPW rising by 35.9%. The report notes that what cyber coverage is included in a D&O policy is still up for debate, and can differ drastically by insurer. However, the defense costs for cyber claims are high and settlements remain common, so even non-covered claims can impact companies. Insurers are writing separate standalone cyber policies, as well as adding specific cyber exclusions to their D&O policies, and A.M. Best believes insurers should continue updating policy wording so that it is clear which cyber perils are and are not covered under their D&O policies. Despite the actions D&O insurers have taken, A.M. Best expects loss costs to continue trending upward in 2018, with competitive rates pressuring premiums and profitability.
To access a copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=269890.
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