French directors should brace for tough market at next renewal

French companies should prepare for significant changes in the cost and availability of D&O insurance at their next renewal as insurers react to rising claims and a decade of premium reductions, according to brokers and insurers. Aside from those with a US listing or claim in 2019, French firms have largely avoided the large increases in D&O premiums and deductibles experienced by companies in other markets, explained Guillaume Deschamps, head of finex at Gras Savoye Willis Towers Watson. However, buyers of D&O insurance in France are likely to face these challenges at future renewals, he warned. “Many countries have seen increases in D&O premium but in France, for many clients, we have continued to experience flat renewals in terms of pricing, including for the recent 1 January 2020 renewals season. Only a few clients have experienced increases, in particular where accounts had very low premium or where there had been claims made or paid in 2019 or due to a US securities exposure,” said Mr Deschamps. According to Marsh, large accounts in France have seen limited D&O price rises so far, with any increases mostly driven by programme restructures. Mid-sized accounts have seen higher increases but only because the level of premium was historically very low, it added. “The French market remains soft insofar as the theoretical capacity available remains high,” said Stephanie Razafinombana, manager of commercial lines in the finpro practice at Marsh France. “However, the market has hardened for companies with exposure to the US stock markets, for some industries such as the high-tech and biotech industries, and for companies that have sustained considerable losses,” she said. “The market is changing for other risks, where we observed for the last 1 January renewal campaign a review by insurers of their capacity, a review of rates, an increase in underwriting information and a reluctance to give additional coverage without an additional premium,” continued Ms Razafinombana. French buyers should now prepare for a very different D&O market going forward, according to Mr Deschamps. “The trends experienced elsewhere, where price increases are a reality, will come to France. The days of buying broad D&O cover for the cheapest price are over. D&O insurance will cost much more in the future,” he said. “The renewal this year was flat for many French companies, including for large international French companies, but next year will be a very different experience. Clients need to be prepared for a reduction in capacity, premium increases and, potentially, restrictions in terms and conditions,” said Mr Deschamps. Marsh also expects the D&O market to change in France during 2020. It noted that the London D&O market has hardened for all insureds, with premium increases of between 75% and 150% for risks without market exposure to the US, Canada and Australia. Increases are between 100% and 250% for risk exposed to these countries, it added. Rates have increased even more in excess layers where rates were low, while some insureds have also been unable to renew their side-C capacity, according to Ms Razafinombana. “French D&O insurers are well aware of these trends and technically refer to chief underwriting officers who have an overview of the global D&O market and who see the French market as an anomaly. We have not noted this type of trend in France at this stage. We have however observed that the market has changed very rapidly and we expect that this change will accelerate in the near future,” she added. Willis has already noted a reduction in capacity for French D&O risks. “As with other countries, there has been a systemic reduction in D&O capacity in France. Before, there was potentially about €750m of capacity available in France and we would not need to access other markets like the London market to place risks, except for very large financial institutions or for US listed companies,” said Mr Deschamps. “In some cases insurers have tried, and been able, to reduce per-client primary capacity from €25m to €15m. Some listed companies have nevertheless managed to hold on to the €25m level, but this will reduce at the next renewal,” he said. Meanwhile, no new insurer has entered the D&O market in 2019, according to Ms Razafinombana. In addition, the majority of insurers are reviewing their allocation of capacity, she said. “We observe a reduction in the maximum working capacity to €15m, even if some insurers still write €25m in a programme if this capacity is ventilated and depending on the rate on line. This has led to the restructuring of several programmes where it was customary to have €25m layers both for primary and for excess, or even €50m layers as the market practice is to write the same capacity as the primary. We also note that insurers are pulling out of risks, or are declining new risks, if the rate on line is deemed too low,” said Ms Razafinombana. “For companies with exposure to the US stock market – direct listing, ADR II or III – the available capacity has reduced drastically as some insurers have withdrawn from this risk entirely and those who still agree to write this risk will engage a maximum of €5m with significant premium increase,” she added. The profitability of the D&O portfolio has been challenged in recent years. This is mainly due to intense competition, which has driven the rate on line down and increased litigation, according to Pauline Vacher, head of financial lines at Allianz Global Corporate & Specialty in France. “The loss ratio for the D&O market is estimated to be above 100% in a number of countries. For this reason, the market had turned in 2019,” she said. In particular, there has been a sharp increase in securities class actions in the US and the emergence of so-called event litigation. In France, individual directors are increasingly being held to account. This includes for non-financial liability, such as bribery and corruption, or for the impact of their company’s activities on employees, consumers and the environment, explained Ms Vacher. “The change has been hard and quick, especially on the US-exposed accounts. As of now, we have seen some accounts that were not able to maintain their programme, due to the reduction of capacity in the market, or due to major increase of the premium. We have seen some triple-digit increases in the market,” she said. Exposures and litigation against directors and officers soared during the last decade, while legal costs have increased, according to Tim Powell, head of international financial lines at AXA XL. In parallel, D&O market premiums continuously decreased for the past 15 years, he said. This was due to the introduction of new players, which created overcapacity, fierce competition and pressure on rates, he added. “This has resulted in significant pricing inadequacy, which is no longer sustainable. This pricing gap is especially pronounced for global and large companies, as they concentrate multiple and international exposures and worst-case scenarios. Since 2019, the D&O market has started reacting to this and has hardened as a result,” said Mr Powell. “The most exposed and significantly underpriced segments that have started being impacted by this new trend include US-listed companies and global and large companies. This firming trend is reflected by both capacity reduction and rate increases. But we expect that other client segments will ultimately follow these trends,” he said. In the current market, underwriters will ask more questions and increasingly differentiate between risks, according to Mr Deschamps. He advises clients to start their renewals early, assess their exposures and focus on the cover they need most.

French directors should brace for tough market at next renewal

Want to read this article?

Read Next

Ferma members told AI will bring risk and reward for corporate insurance buyers

Aon’s revenues up 5% as it completes $13bn NFP deal

Warmer climate spreading risk of malaria and dengue to new regions

UN launches new net-zero insurance forum to replace NZIA

Pen extends fleet capacity deal with Zurich in Republic of Ireland

Ferma members told AI will bring risk and reward for corporate insurance buyers

Aon’s revenues up 5% as it completes $13bn NFP deal

Warmer climate spreading risk of malaria and dengue to new regions

UN launches new net-zero insurance forum to replace NZIA

Pen extends fleet capacity deal with Zurich in Republic of Ireland

Want to read this article?

Read Next

Ferma members told AI will bring risk and reward for corporate insurance buyers

Aon’s revenues up 5% as it completes $13bn NFP deal

Warmer climate spreading risk of malaria and dengue to new regions

UN launches new net-zero insurance forum to replace NZIA

Pen extends fleet capacity deal with Zurich in Republic of Ireland

Related Articles