US D&O liability sector continues to see prices fall, says Fitch
The US D&O liability insurance sector is seeing heightened pricing pressure and material declines in premium volumes, tied in part to increased competition, but continued to generate favourable loss ratios through the first half of 2023, says Fitch Ratings.
It said: “The likelihood of sustainable segment profitability at current levels has been greatly reduced by weaker pricing and potential for claims volatility from a myriad of sources. However, recognition of reserve redundancies from the most recent accident years may support near-term underwriting results.”
Year-to date D&O direct written premiums fell by 11% year-on-year through 30 June 2023, and direct earned premiums declined by 9%, based on property/casualty industry aggregate statutory results. According to Fitch, loss ratios are expected to worsen, as heightened competition has reversed, resulting in lower renewal rates, but the segment’s direct loss ratio of 53.6% for 1H23 was relatively unchanged from 53.4% for mid-year 2022.
Fitch noted that Aon’s quarterly D&O market index showed an 11% decrease in rates for 2Q23 for primary policies renewing with the same limit and deductible, and added that this pricing momentum is unlikely to subside in the near term.
Weaker GDP growth and Fitch’s expectation for a recession in 4Q23/1Q24 may lead to higher D&O claims frequency, particularly if corporate insolvencies rise or equity markets meaningfully decline, said the ratings agency. It added that risks in other areas, including regulatory and compliance issues, employment practices, cyber threats, climate risk, and cryptocurrencies may also contribute to future D&O losses.
