D&O Market Has Most Profitable Year Since 2014 but Results May Be an Anomaly

The directors and officers insurance marketplace in 2021 enjoyed its most profitable year since 2014 but results have to be “viewed as a possible aberration rather than a the start of a trend,” according to a new report from AM Best.

Rate increases since 2020 led to significant premium growth and improved underwriting results in 2021. Pricing increases in each quarter were over 10% and more double-digit increases are expected in 2022. But despite trends leading to D&O underwriting losses experienced during years prior to the latest rate increases, the segment was slow to aggressively raise rates and now premium increases may have peaked. Therefore, maintaining the level of profit seen in 2021 is in doubt.

AM Best said the first half of 2022 will show whether results in 2021 were “an anomaly.”

Factors such as social inflation, litigation funding, the focus on environmental, social and governance (ESG), cyber-related D&O claims, and litigation related to special purpose acquisition companies (SPACs) will remain as significant headwinds. Plus, AM Best said, expenses for D&O insurers are expected to rise as court caseloads return to normal following their post-pandemic reopening. Also, backlogs have led plaintiffs attorneys to delay filing new cases.

Paid or reserve estimates for claims or losses – defense and cost-containment expenses – increased just 4% in 2021 after increases of 39% in 2019 and 14% in 2020, AM Best said in the report.

“The substantial slowdown in 2021 was due at least in part to delayed court cases,” AM Best said.

Meanwhile, the market is controlled by just a handful of underwriters. AM Best said the top three – XL Reinsurance American Group, Chubb INA Group, and AIG – hold about third of overall direct premiums written. The marketplace could have a new company in the fourth position. Berkshire Hathaway’s proposed acquisition of Alleghany Corp. will make it the fourth-largest D&O writer.