US D&O Insurers' Improved Performance Might Slow Premium Increases

Several years of rapid premium growth have led to a material decline in US directors and officers (D&O) insurers' 2021 loss ratios, which may continue in the near term, according to Fitch Ratings.

US D&O insurers' recent performance improvement is expected to temper further price increases, Fitch said.

The rating agency said future US D&O claims will be affected by economic uncertainty, continued increases in litigation and settlement costs, and the potential for losses in new areas including cyber and environmental, social, and governance exposures.

Premium increases for D&O insurance since the second half of 2019 in response to insurers' unfavorable loss experience resulted in premium growth that was among the highest of US commercial insurance segments, Fitch said. US D&O direct written premium totaled $14.9 billion in 2021, an increase of more than 130 percent from 2018, according to Fitch.

Several rounds of price increases and underwriting actions led to a turnaround in the US D&O segment's performance in 2021, Fitch said, with the industry direct loss and defense and cost containment ratio improving to 64 percent from an average of 75 percent from 2017 to 2020.

Fitch cited data from the Council of Insurance Agents & Brokers' Commercial Insurance Market Survey, which showed an average 15 percent quarterly premium increase from the first quarter of 2020 through the fourth quarter of 2021, with a 13 percent increase during 2021's fourth quarter.