Rates to continue upwards

It seems that even a pandemic will not be sufficient to stop the insurance market in its determination to drive up rates and create more sustainability in its portfolios, as Liz Booth discovers. Rates are continuing the upward rise started in 2019, market experts confirm. Considering whether a recent dramatic hardening in directors and officers (D&O) cover and reducing capacity in many areas means that this is more difficult to include within a global programme, Brian Botkin, global head of multinational, financial lines at AIG, says: “While we are witnessing a tightening and a repricing in the current D&O market, the availability of local policy limits has not changed significantly. “While the frequency of claims against local policies is increasing, the severity remains in line with local, private company claims for majority-owned subsidiaries in the specific jurisdictions. This is affecting the premium allocation of these local policies, as there is a movement in premium that corresponds to local claims experience. “Multinational carriers are more closely examining the systemic risk in D&O programmes as economic conditions continue to deteriorate. This has resulted in some tightening of the availability of local limits in litigation-prone jurisdictions.” Ayleen Frete, head of multinational, regional unit London and Nordics, Allianz Global Corporate & Specialty (AGCS), adds: “Since 2019, the global D&O market has been hardening, driven by adverse previous years’ claims developments, new records of claims activity (including US securities class actions) and the acknowledgement of several years of rates not adequately reflecting the risks. On top of that, a rising number of insolvencies as result of the pandemic/economic recession may lead to higher D&O exposures as well.” She says that, based on this background, all insurers have been adapting their strategy in terms of D&O capacity deployment. There are insurers in the marketplace that have either stepped out of some industries or simply do not write primary business anymore. “At AGCS, we have also reviewed our strategy and applied more conservative limits, mainly for US-listed risks and the so-called high-risk industries. Our global strategy is to keep a market-driving position and solid case-by-case underwriting, but with necessary terms and conditions improvements included in global programme policy wordings,” she says. This leads onto the question of whether an expected greater use of captives across Europe and worldwide will lead to a greater use of global programmes as a result. Matt Latham, CUO global programmes and captives at AXA XL, is not convinced. “I’m not sure this will have a significant impact,” he says. “Most of the new captives we work with are established by companies that are multinational. To get the full benefit from their captive, they typically have already taken the step of establishing a global programme. Creating a captive, then, is the next stage in the evolution of the group-level risk management function. “Of course, there are also captives being established by companies that are not multinational, but for those, global programmes are not relevant.” Increased insurance supervision across the world may require existing captives to ensure they are meeting compliance rules in their different locations, suggests Ms Frete. “Therefore, teaming up with an insurer with a broad network may help them to ensure they are being compliant in the deployment of their global programmes. For example, we have the ability to provide captive solutions via our alternative risk transfer line of business, such as structured fronting or captive stop-losses, to support a captive’s reinsurance objectives across their product portfolio requirements.” Stephen Morton, head of multinational, Europe at AIG, says: “We see an increase in captive use and a more important role for captives in clients’ overall risk transfer strategy.” He cites the example of this in increasing the captive retention/participation and stepping up to the overall limit in place of a commercial insurer. “The key reasons are the increase in rate (using a captive can offer a possibility to mitigate this increase), reduction in capacity and the fact that insurance companies tend to have higher attachments (deductibles), which may not fit with the client’s strategy,” Mr Morton explains. “We see an increase in global programmes, mostly due to centralisation of the risk management function with the objective of having fully compliant insurance programmes, standardisation of cover and possible reductions in operation cost.” Added to that, he says: “We have also seen the captive fronting business continue to grow as companies expand the use of their captives from a geographical perspective and also because they have started to expand the lines of business covered by their captives. We see more requests in growing lines of business such as some financial lines, accident and health, trade credit and marine.” To hear more from these experts, register for the upcoming Global Programmes Europe conference at: https://www.commercialriskonline.com/event/gplon20/

Rates to continue upwards

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