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CAC Specialty’s D&O Webinar: Part 2

Apr 16, 2020

CAC Specialty’s D&O Market Update:

On Friday, April 3, 2020, CAC Specialty hosted the second of two D&O Market Updates with some of the most senior underwriters in the industry. We were thrilled to have the following participants on our panel:

Berkley Professional: John Benedetto

Berkshire Hathaway Specialty: Dan Fortin

Chubb: Scott Meyer

CNA: Paul Larson

Tokio Marine HCC: Andy Stone

Here are some key takeaways from the panel’s discussion:

Table Stakes–Rates

  • CAC’s CEO, Mike Rice, gave a quick introduction including his “back of the envelope” analysis of the D&O marketplace. This analysis concludes that there is no room for error in the underwriting of D&O with regards to securities class action exposure. The analysis did not include claims outside of securities class actions, thus identifying a significant gap between premiums and losses.
  • The audience was reminded that the first D&O Market Webinar was focused on the reasons for the insurers’ need for rate, and that this week’s Update was centered on how companies can differentiate themselves for the underwriters.
  • Insurers did, however, provide color commentary regarding their respective books of business. Percentage increases were in line with those reported last week.

Loss Developments

  • Insurers’ loss developments in years 2016, 2017, 2018 are not favorable. As these specific years were years of incredibly positive economic growth, insurers are thinking about how future losses will look now that the economy has been, and continues to be, negatively impacted by the pandemic.
  • As a result of historic losses, at least one insurer described the underwriter action needed to adjust their book as “significant”.
  • It is important to remember that Loss includes defense costs. One insurer pointed out that the billing rate of securities litigation attorneys were up 40-50% while, at the same time period, pricing of D&O insurance was decreasing and retentions were low.
  • At least two insurers mentioned that they were willing to financially help insureds who want to take the right case to trial in order to establish good case law.

Underwriting in and through the pandemic

  • Underwriters are up and running remotely.
  • Starting the renewal process early remains important; but most insurers are not willing to provide bind-able quotes well in advance of renewal date. That noted, one insurer mentioned that they do signal in advance any anticipated significant increases in premium and/or retention, and any anticipated reduction in capacity.
  • One-on-one time (virtual for now) between insureds and insurers as well as risk differentiation remain important.
  • Biggest “pandemic-related” underwriting questions are around company’s guidance and disclosure.
  • As companies begin to reopen, focus will be on how quickly and efficiently companies can get back up and running.
  • Our panelists identified that they are not currently using pandemic-related exclusions on D&O policies.

Crystal-balling it…

  • Underwriters are keeping a close eye on large projected settlements.
  • Traditional A/B/C primary, excess and Side A pricing will continue to harden.
  • Outside of public company D&O, insurers are scrutinizing and focusing on their private equity and EPLI books of business.
  • Despite all of the planning, one underwriter went on to quote Mike Tyson, “Everybody has a plan until they get punched in the mouth.”

If you would like a full copy of the event on 3/27 or 4/3, please reach out to your CAC Specialty Broker. Thank you.

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