State of the Market for Directors’ and Officers’August 2018

In our experience since

the beginning of 2018, the

Directors’ and Officers’

(D&O) and management

liability markets have

continued the extensive

hardening that we first saw

signs of in 2017.

In 2017, insurers remained focused on two main areas:

1. Rectifying their USA-listed

pharmaceutical business portfolios,

following a huge increase in the

number of securities class actions in

the sector; and

2. Re-evaluating their crime insurance

portfolios, where insurers had not

coped with the emerging social

engineering exposure.

2018 has brought a renewed focus on all

risks, which has spread to all areas of the

D&O and management liability market,

with a determination of carriers to write

profitable portfolios. This is due to

various factors:

• A deterioration of past claims. Most

major management liability insurers

have not made an underwriting profit

since 2011;

• A bad hurricane season for the

property and casualty insurers

made the need for correction of

unprofitable books more urgent;

• The continuous flow of new securities

class actions, particularly in the US

and Australia, albeit at a slightly

lower rate than in 2017;

• Adverse precedents, such as the

Cyan case, which allowed for US

securities class actions to be heard in

State courts as well as Federal

courts; and

• An increase in unexpected litigation

in territories where these levels

of high-profile litigation was not

anticipated - such as Carillion (in the

UK) and Steinhoff (in South Africa).

All of the above has created a volatile insurance market where:

• Pricing and retentions are increasing

(we have witnessed increases of

over 100%). This is almost irrespective

of a company’s financial and

operational performance. Decreases

are virtually unobtainable;

• Excess insurers are no longer

following the terms set by the

underlying insurers on rate. They

are increasingly quoting at the rates

required for certain attachment

points, based on the risk exposures;

• Many insurers are also reducing or

ventilating their capacity. With few

‘new’ insurers ready to participate

at the current rates, brokers

frequently need to restructure

programmes; and,

• The smaller limits being offered

by insurers on the lower layers of

programmes may also limit the

amount of capacity that it is

possible to source for the largest

D&O placements.

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In addition, as D&O and management

liability lines are long-tail business, it is

common to see complex claims being

resolved up to five or six years after

the purchase of the policy. Some of

the largest post-financial crisis claims

are beginning to settle at larger than

expected values and we expect that

some insurers’ portfolios may struggle to

support multiple large claims payments

over a short period.

With regards to policy breadth, for the

time being, the cover being offered by

insurers has not been affected widely.

Much of the small and mid-sized

company business is still being written

using broker-designed wordings and

much of the largest business is still on

bespoke wordings - providing clients

with an advantage. Furthermore, we have

not seen the traditional ‘hard market’

endorsements coming back onto policies

in any meaningful way.

The vast majority of renewals should

expect a challenging year.

If you would like more information, please contact:

David Ritchie Executive Director

T: +44 (0)207 204 8565E: David_Ritchie@ajg.com

Arthur J. Gallagher (UK) Limited which is authorised and regulated by the Financial Conduct Authority. Registered Office: The Walbrook Building, 25 Walbrook, London EC4N 8AW. Registered in England and Wales. Company Number: 1193013. www.ajginternational.com FP 624-2018 Exp 07/2019

Why Gallagher?Our Management Liability team offer all you would expect from

one of the world’s largest brokers – broad coverage and market

influence. We also offer a dependable, personal service that

seeks to exceed your expectations from day one. We take great

pride in not just offering insurance, but also assurance.

We have a range of management liability products available; all

of which provide broad and robust cover:

• Directors’ and Officers’ Liability (D&O)

• Excess Side A and ‘Difference In Conditions’

• Employment Practices Liability (EPL)

• Prospectus Insurance (capital raisings)

• Pension Trustees Liability

• Transactional Risks (including W&I)

• Crime (including social engineering risks).

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