GVNW rebuts GDV warnings over D&O outlook

A storm is brewing in the German D&O insurance market as the risk and insurance management association (GVNW) responded rapidly and robustly to a warning from the German Insurance Association (GDV) that rates would likely need to harden again in the face of rising insolvencies and new regulations. The GDV’s note was clearly intended to warn German commercial and corporate customers that, despite healthy results in the D&O line over the past couple of years, underwriters would need to stiffen their resolve in coming renewals because of the wider market forces after less stressful D&O renewals in recent times. GVNW reacted swiftly and strongly to the GDV note, suggesting that the association was basically scaremongering and actually misreading its own figures. The GDV expects more manager liability cases as the economic situation worsens. “The number of company insolvencies is increasing. This usually results in high claims for damages from insolvency administrators against managers,” said GDV managing director Jörg Asmussen. In addition, there are constantly increasing compliance requirements, most recently due to the Supply Chain Act or the Whistleblower Protection Act, said the GDV. “Managers are personally liable for establishing a functioning compliance system. The risk of management errors is particularly high when implementing new laws,” said Asmussen. The association pointed out that D&O damages for German insurers increased last year. “The damage expenditure climbed to €213m,” said Asmussen. The reported losses in management liability insurance only increased slightly by 1.8%, however a single claim was significantly more expensive for D&O insurers. “The average loss in 2022 was almost €107,000. A year earlier it was €81,000,” said the GDV managing director. The interesting, and contentious part for the GVNW, was that the GDV said the claims ratio for D&O business after settlement in 2022 was 42.4%, only slightly worse than the 41.4% for 2021. “The division is therefore likely to have achieved underwriting profits – as was the case over the long-term average (2016-2022),” said the GDV. “But the numbers should not hide the fact that the results are very volatile and vary greatly between providers,” stressed Asmussen. “In the long term, around a third of insurers would have a loss ratio of over 70% after settlement. This is an indication of insurance losses,” he added. The GVNW was not impressed by the GDV’s arguments ahead of the year-end renewals. “The GVNW has no understanding of the attempts by the insurance industry to suggest the D&O division faces impending new difficulties and to conjure this up. After a two-year phase of market hardening, we have observed a noticeable easing in demands for premium increases since the beginning of this year, as well as a significant stabilisation in insurance sums and conditions. This may not suit some insurers, but it just shows that the laws of the market work,” said Marcus Bastian, legal counsel at the GVNW. “Nebulous warnings about increasing damage in D&O insurance due to an increase in corporate insolvencies and growing compliance requirements, with the (clear) aim of counteracting a further drop in prices, are completely unfounded,” he added. Bastian said that the current GDV damage statistics for the D&O market speak for themselves and “clearly contradict” the corresponding warnings. Stable loss ratios of just over 40% show that D&O continues to be a very attractive business area for a large number of providers, he said. “It is true that the risk landscape for managers is currently changing rapidly due, among other things, to increasing compliance requirements. The risk of management errors may also be greater than is generally the case, particularly when implementing new laws,” conceded GVNW’s legal counsel. “However, it is also true that, given the (rightly) great media coverage of the topic of manager liability, the awareness… of the very danger among company managers has never been as high as it is today. Word has been spreading among managers for some time that D&O insurance is neither a peace of mind nor a panacea,” added Bastian. The GVNW counsel also pointed out that the number of corporate bankruptcies is currently increasing but from a historically low level. “This is not a suitable indicator of a sustained increase in claims expenses in the D&O sector, but rather simply a one-off catch-up effect [from] the pandemic period. There are currently no valid signs of a continued increase in insolvencies back to the levels of five to ten years ago,” said Bastian. He added that it is no revelation to find that the D&O market is a very volatile division in terms of results. Bastian also pointed out that if the loss ratio for a third of insurers is 70% then surely it has to be stressed that the other two-thirds are doing very well reporting loss ratios well below 40%, in some cases in a generally profitable market since the start of the market hardening in 2016. “The fact that some important providers of D&O policies are not members of the GDV and their divisional results are therefore not included in the association's statistics reduces – to the regret of the GVNW – the informative value of any current or future GDV survey,” concluded Bastian. The GDV reported that those D&O insurers that took part in its survey accounted for a total premium volume of €498m. But the market in Germany is almost double that, pointed out the GVNW. “Based on an industry estimate, we assume a premium volume of around €900m for the German market,” said Asmussen.

GVNW rebuts GDV warnings over D&O outlook

Risk managers deride ‘nebulous’ claims by GDV

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