HomeInsuranceStrong D&O Insurance Results Unsustainable in 2024

Strong D&O Insurance Results Unsustainable in 2024

Despite strong underwriting results in 2023, Fitch Ratings reports that the U.S. D&O insurance market faces declining premiums and emerging litigation risks.

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The U.S. directors and officers (D&O) liability insurance market’s impressive underwriting performance in 2023 may not be sustainable due to declining premium revenues and inherent underwriting volatility, according to an analysis by Fitch Ratings.

The property and casualty (P/C) industry segment recorded a strong underwriting profit in 2023, with the loss and defense and costs containment (DCC) ratio improving by eight percentage points to 60%, marking the best result since 2014. However, the D&O market is expected to face softening conditions for the third consecutive year in 2024 due to heightened competition and lower premium rates.

Fitch noted that Aon’s quarterly D&O market survey indicates that primary renewal rates have dropped in the last seven consecutive quarters. This pricing pressure is more pronounced in higher-layer and excess business due to abundant underwriting capacity.

The industry’s direct written premium (DWP) volume is likely to continue its decline in 2024. After a 134% expansion from 2018-2021 in response to poorer market performance, a shift in pricing momentum led to a 23% DWP decline from 2021 to 2023 to $11.5 billion.

Traditional class action filings increased for the first time in three years in 2023, according to reports by NERA Economic Consulting. The D&O market is also exposed to several developing risks outside of traditional claims sources, including litigation tied to cyber risks, Environmental, Social and Governance (ESG) practices, climate risks, and employment practices.

Despite a sharp drop in 2023 premiums, AXA-XL continues to lead the U.S. D&O market with a 9.6% share, followed by Chubb (9.4%), Berkshire Hathaway (8.1%), AIG (7.8%), and Tokio Marine US (7.4%), according to Fitch.

The D&O insurance segment’s future sustainability is under scrutiny as it faces a myriad of challenges, including declining premium revenues, increased competition, and emerging litigation risks. The industry’s ability to navigate these challenges will be a key determinant of its future trajectory.

To learn more about Fitch Ratings’ D&O analysis visit the rating agency’s website. &

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