Price Firming Across Sector D & O

 

Tuesday, Mar 24,2009, 12:17:57 AM   Click:

Copyright 2009 Crain CommunicationsAll rights reserved Business Insurance

16 March 2009

NEWS; Pg 4

737 words


Price firmness in D & O sector Other areas of financial services at higher rates

ZACK PHILLIPS



NEW YORK-price for directors and officers liability insurance has begun to tighten the financial services companies and flatten for other lines in the middle of the rise of securities and declining economy of the trial, observers say.

Rates for D & O coverage rose dramatically in the financial services sector, according to brokers, insurers and lawyers in professional liability underwriting of the Company D & O Symposium, February 25-26 held in New York. Now the rate of O & D in other sectors have started to flatten after several years of mild prices, they say.

`` Everyone is ready and understands that we are absolutely entering a difficult market,''said John A. Kuhn, CEO of Axis Insurance Co. 's professional lines division. `` Some price increases are probably even lower than what they need to access some of these accounts.''

A recent price index by the Chicago brokerage Aon Corp. showed that the average price of $ 1 million in D & O coverage was approximately 3% higher in the fourth quarter of 2008 over the fourth quarter of 2007 The first year increase in 21 consecutive quarters.

Aon reported a 50% increase in price of D & O for the financial services sector was the reason for the increase while the average price of D & O for the other sectors declined by 6% in the last quarter of last year.

Symposium observers said that the rest of the D & O sector soon follow the firm already underway for the financial services sector.

`` The global recession ... will certainly have an impact on non-(financial institution) firms, and it is a question of how and when, that puts pressure on the insurers,''said Michael Smith, president of the executive responsibility for 'AIG in New York.

Despite the increase, D & O rates to their peak in the fourth quarter of 2002. Underwriters said that the market has grown soft left D & O coverage under-valued and too broad.

`` The exclusions have been watered down through this whole cycle,''said Jeffrey Klenk, senior vice-president of Travel Bond & Financial Products in Hartford, Conn. `` We have never put the genius in bottle with a blanket of view.''

Several factors are behind the tightening of the market trend.

The increase in business bankruptcies, the prospect of the great unknowns in fraud cases, a rise in securities and other legal actions, and the increase in investigations by the Obama administration the Securities and Exchange Commission will likely continue the recent trend towards more expensive and D & O claims, observers and experts said. In addition, the share price struggling means insurers can not rely on investment income to subsidize unprofitable underwriting.

`` It is certainly to be a differentiation of risk,''said Michael Karmilowicz, vp Hartford Financial Products in New York. `` Some accounts increases. For large companies, you have certainly seen a flattening of the pricing.''

Nevertheless, several observers said they expect the overall market for D & O to tighten gradually.

`` We will not allow radical changes that we have had in other markets''hard, "said Kuhn. `` I hope it will become more of a gradual tightening of the market and not the heavy swing of the pendulum back and forth.''

Underwriters said some companies with tight budgets in May drop D & O coverage.

`` For a private company, they are discretionary guarantees,''said James P. Bronner, a Warren, New Jersey, based on the officer-in-chief underwriter and senior vice president at Chubb Specialty Insurance. `` They have to buy an auto policy. They have to buy a property contract. They need to purchase a general liability and workers comp policy, but they do not have to buy D & O. And that's unfortunate, but we run the risk of that dynamic, because of economic fundamentals underlying challenges facing these companies, they will have to take these decisions (whether to continue coverage D & O).''

The market has not yet seen a flight of the capacity but the capacity to contract should ensure that the losses and the cost environment becomes increasingly unfavorable for subscribers, "said Bronner.

`` Unfortunately, carriers have tended to see the results in the past ... Contrary to prediction how the environment will play in the future'', said Bronner.

`` I think a lot of (D & O) carrier are certainly ask the question, maybe not answer, but ask questions about the longevity and viability of (subscription), the financial services industry,'' Mr. Bronner said.

20 March 2009

Copyright © 2009 LexisNexis, a division of Reed Elsevier Inc.. All rights reserved
Terms and Conditions Privacy Policy