Stable D&O market in 2023 as competition increases, says WTW

The D&O market is likely to remain stable and competitive into 2023 as a result of increased capacity from newer market entrants since late 2020 and an improved securities litigation environment, according to WTW.

In a recent review of the D&O market, WTW says: “Through Q3 2022, we have seen flattened-to-improved D&O premium outcomes, which we expect to continue into the new year. Newer markets initially generated rate relief in the excess layers; however, as markets continued to seek growth, several carriers have provided alternative primary competition and leverage.”

It adds that competition among insurers for Side-A business has been “reinvigorated following a protracted period of rate adjustment”.

“Competition in this area has also been driven largely by newer market entrants, a phenomenon we expect to continue,” it says.

The review notes that 2022 represented a year of continued market improvement for D&O liability insurance buyers. It says the hard market peaked in the third quarter of 2020 and began to stabilise in 2021 and in 2022, with rate increases decelerating and securities litigation filings decreasing for a third straight year.

“2022 was the year of continued D&O insurance rate increase deceleration. Coming off of more than two years of hard market conditions, the public company D&O liability insurance market in 2021 and 2022 experienced a significant deceleration of rate increases. The factor most responsible for the offsetting of hard market challenges was new insurance market capacity, predominantly in excess layers. This capacity inflow led to additional buyer leverage and an enhanced ability to address capacity challenges,” says WTW.

But it warns that other factors arose throughout the year that warrant caution going forward. “The economic resurgence in 2021 has been tempered by inflation and recession concerns, uncertainties surrounding global tensions, the advancement of environmental, social and governance (ESG) disclosure regulation overseas and proposed regulation at home, as well as the anticipation of heightened bankruptcy filings,” it states.

The WTW review highlights the continued evaluation of ESG as a heightened D&O risk: “Directors and officers in 2023 are likely to be increasingly expected to take responsibility for oversight of more issues. With these expanded duties and more wide-ranging public statements will inevitably come continually expanding opportunities for litigation and regulatory exposures,” it warns.

It also notes the continuing trend of decreased securities class action (SCA) filings: “A downward trend is expected to continue due to proposed SEC rules and government scrutiny into SPACs and de-SPAC combinations. Yet, related SCA filings persist at high levels, with 2022’s filings (21 through September) on pace to come in just under 2021’s record annual filings of 33.”