US Directors and Officers Insurers Post Their Best Results Since 2014

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May 20, 2022

An animated rocket with the word GROWTH on it is launched by a business professional and directed upwards toward the sun

The US directors and officers (D&O) insurance market's 2021 results were the best the segment has experienced since 2014, according to A.M. Best.

The rating agency noted that US D&O insurers experienced significant growth in both top-line premiums and profitability in 2021.

A new Best's Special Report, "D&O Insurance: Positive 2021 Results, but the Segment Still Faces Formidable Challenges," said that consistent aggregate price increases by D&O insurers that reportedly exceeded 10 percent per quarter produced direct premium growth of 35 percent to $14.6 billion.

"Excess capacity has been a primary contributor of the disparity between rates and the pricing of risk exposures, even as the loss ratio crept upward," Christopher Graham, senior industry analyst, industry research and analytics at A.M. Best, said in a statement. "With results worsening because of factors such as social inflation, litigation funding, environmental, social, and governance concerns, and cyber-related claims, insurers have pushed aggressively for elevated premiums upon renewal, as well as higher self-insured retentions and more-restrictive terms and conditions."

The report states that further improvement in the US D&O insurance market depends on whether insurers remain disciplined in meeting needs for rate adequacy and in offsetting rising claims costs.

The report also notes that the full impact of the COVID-19 pandemic on D&O and other professional or management liability lines won't be known for some time. COVID-19-related D&O claims may be lagging occurrences or actions, Best said, as the pandemic continues to challenge businesses and the economy. "As a result, the increase in premium and its impact on the line's direct profitability may not reflect the actual depth and complexity of the challenges D&O insurers still face," a Best statement said.

In addition, with fewer legal proceedings reaching trial and court cases and litigation delayed due to the pandemic, a slowing in the increase of defense and cost-containment expenses—which also contributed to the D&O insurers' positive results—might be temporary, the rating agency said.

"The improvement in results in 2021 has to be viewed as a possible aberration, rather than the start of a trend—at least until full-year 2022 results are available," David Blades, associate director, industry research and analytics, AM Best, said in the statement. "The D&O line's bottom-line profitability in 2022 will indicate whether carriers' actions were enough to generate true price adequacy and serve as a springboard for sustainable improvement."

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May 20, 2022