U.S. publicly-traded corporations paid 4.9 percent more on average for their primary directors and officers’ liability (D&O) coverage in the second quarter, according to a customer analysis by Marsh. However, when normalizing for individual insurance program structure and risk profile differences, average primary D&O premiums actually declined 0.97 percent in the quarter, Marsh said.

“By normalizing D&O premiums for changes in program structure and risk profile, our clients are able to determine how current market pricing is pacing with their exposures and risk management strategies,” said Brenda Shelly, D&O product leader for Marsh.

On average, risk-adjusted total program rates were down 3 percent with a median decrease of 8.93 percent. Under a traditional analysis — without modification for changes to risk profiles that are key to a risk-adjusted view — average primary D&O rates held a median increase of 5 percent. Total program rates increased an average of 1.8 percent, with a median increase of 1.5 percent.

Although primary D&O rates continue to firm on a traditional rate comparison basis, the excess market remains competitive with recently expanded capacity. This competition served to offset primary and lower layer program increases during the quarter.

Commenting on the overall D&O market for publicly traded companies, Shelly said that underwriters remain concerned about merger objection claims, corporate regulatory investigations, and compliance and enforcement activity. “However, clients are still able to obtain favorable terms, conditions, and pricing, especially on excess program layers.”

Merger objection claims and litigation are a particular issue for small to midsize companies, according to Marsh, as nearly every transaction today triggers at least one lawsuit, and typically multiple suits in several jurisdictions. Thus, Marsh asserts that defense costs and settlements from merger litigation typically exceed D&O policies’ self-insured retentions, which has resulted in higher primary premiums in the segment. Several D&O insurers also have moved to impose separate M&A retentions, ranging from $2 million to $4 million, in an effort to offset their risk for these claims.

In the latest report, “Marsh Risk Management Research Briefing Risk-Adjusted Benchmarking,” Marsh goes on to show that average risk-adjusted primary and total program D&O rates fell in nearly all market cap segments, with the only exception being an increase of 2.60 percent seen in the small cap space.
Marsh’s risk-adjusted benchmarking, which launched earlier this year, uses data from a larger set of Marsh client renewals and normalizing rates for changes in exposures, including those related to market capitalization, stock performance, valuations, balance sheets and accounting for differences in program structure, such as retentions and limits.


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