Restricted limits will make it harder to find capacity for large programmes.
For years, the continental European D&O markets have been extremely soft, seeing a continuous drop in premiums combined with an extension of cover and still a further increase in capacity.
In some instances, D&O policies have rather become broad enterprise risk covers, harvesting limits and, thus, losing focus on protecting the insured persons. With extended reporting periods (ERPs) getting prolonged and, at the same time, with attempts to shift cover to policies triggered under the ERPs, D&O cover has also come to respond to long tail risks, quite contrary to the original purpose of the claims-made trigger. To add to that, with an increased frequency of the shaving of limits approach for settlements – where excess layers shall contribute without a full exhaustion of underlying limits – in particular in jurisdictions as Germany, the underwriting approach and risk calculation for excess insurers has been put in question.
Against this backdrop, it comes as no surprise that many insurers have been seeing negative loss ratios. In 2020, we will see the trend to a hardening market continue. This will entail rate increases, especially for sectors like FI and for accounts seeing significant losses over the years. However, insurers will also restrict available limits, thus making it more difficult to find sufficient capacity for large programmes. At the same time, this will create opportunities for some of the newer players in the market to position themselves as reliable partners to the industry. Moreover, insureds, brokers and insurers will need to re-focus the scope of cover of D&O policies in a joint attempt to make the cover sustainable and fit for purpose.
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