Global broker Marsh reported that the directors and officers liability insurance is in “a state of transition” at the start of 2013.
With overall program rates “generally flat to up slightly,” and excess insurers now “taking a more disciplined approach to capacity,” Marsh said predicts continued price firming in 2013 in its report, “Risk-Adjusted Benchmarking: D&O Rates Rise In Fourth Quarter.”
According to Marsh’s analysis, in the fourth quarter, risk-adjusted rates for primary D&O programs increased 4 percent—eclipsing the pace of change for D&O programs in total (A-B-C programs), which rose 3 percent.
Marsh also said the market for Side-A difference-in-conditions (ADIC) coverage remains stable.
Marsh bases its analysis on a risk-adjusted benchmarking approach, explaining that the approach accounts for differences in (normalizes) retention levels, layer sizes and other factors that otherwise make one insured’s D&O program different from the next.
Viewing the risk-adjusted price changes by company size, Marsh said the D&O insurance market is tightening faster for small-cap companies—those with $300 million or less in market capitalization. In fact, while total program rates rose 9.1 percent for the small companies, D&O rates for mid-cap companies (with $300 million-to-$2 billion in market cap) rose 2.7 percent, while larger cap companies saw declines or slight rate jumps.
Addressing the possibility that the slower price movements for large-cap company programs might be attributable to more aggressive competition as insurers burned by loss from merger-related litigation in the small and mid-cap areas seek to spread losses, Marsh said it’s too early to draw that broad conclusion.
Analyzing the rate changes by industry, Marsh found that the communications, media, and technology sector experienced the steepest D&O rate hikes—at 7.4 percent. By comparison, the life science sector saw fourth-quarter total D&O program rates climb 5.8 percent, while the jump for financial institutions was 3.2 percent.
Marsh reported flat renewals for two remaining sectors analyzed in the report—energy and manufacturing.
Marsh said regulatory actions are a major concern for communications, tech and life sciences companies—and their D&O insurers.