Directors & officers liability insurance (D&O) and professional liability business is generating accident year underwriting losses for the industry despite recent stability in loss ratios, according to a new segment analysis from Fitch. D&O premium rates were previously lagging the market recovery in the broader commercial lines segment, but pricing trends are now catching up.
Fitch collected D&O supplement data to analyze industry aggregate underwriting results, and in doing so, the firm found that direct written premiums grew by approximately 6 percent in 2012 and the industry direct loss ratios improved by three points to 48 percent. Aon Corp.'s D&O Pricing Index shows that rates in fourth quarter 2012 were 9.9 percent above the prior year fourth quarter.
The largest direct writers of D&O coverage in the United States were American International Group, Inc., XL Group Ltd, The Chubb Corp., HCC Insurance Holdings and Travelers Corp. as of year-end 2012.
Key sources of claims relate to securities litigation as well as regulatory actions and settlements, according to Fitch; more recently, claims related to mergers and acquisitions have been a source of material losses for D&O insurers.
Accident year loss ratios for the other liability—claims made (OLCM) segment have been relatively stable over the last five years, maintaining unhealthy levels that are well above highly profitable years in the mid-2000s. Industry combined ratios in OLCM on a calendar year basis are slightly above 100 percent.
Favorable loss reserve development continues to boost underwriting performance, reducing the industry OLCM loss ratio by approximately 4 percent in each of the last two years, according to Fitch’s analysis.
