4 Steps to Help Take Advantage of a Buyer-Friendly Directors' & Officers' Market

4 Steps to Help Take Advantage of a Buyer-Friendly Directors' & Officers' Market
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This insight is part 08 of 12 in this Collection.

January 12, 2024 7 mins

4 Steps to Help Take Advantage of a Buyer-Friendly Directors' & Officers' Market

4 Steps to Help Take Advantage of a Buyer-Friendly Directors' & Officers' Market Hero Banner

The global D&O market remains soft, creating a favorable environment for buyers. With abundant capacity and increased competition, capitalizing on conditions now is critical as rates are showing signs of moderating.

Key Takeaways
  1. Easing D&O pricing is expected to persist in 2024, especially for new public companies in their first and second renewals.
  2. Capacity continues to expand and competition is strong, although some insurers seek to decelerate reductions as they closely monitor results and profitability.
  3. These four tips can help buyers optimize this beneficial market.

Global market conditions in the directors’ and officers’ (D&O) insurance market remain buyer-friendly. Abundant capacity has created strong competition among D&O insurers, leading to continued premium decreases and deductible reductions that are prolonging an already soft market — one that’s held steady since pricing began to ease in 2022.

With an eye on 2024, capacity is expected to remain strong, continuing this favorable environment. However, some insurers have indicated an intention to decelerate reductions and remain disciplined about capital deployments as they closely monitor results and profitability. This will likely lead to rate decreases moderating — a trend we are already seeing in certain parts of the world.

“Large year-on-year percentage reductions are tapering, however, we expect to see continued reductions for the foreseeable future,” says Cam Allen, chief commercial officer in Aon’s Financial & Professional Services practice in the UK.

D&O Conditions from a Global Market Perspective

  • North America:
    • United States: According to Aon data, capacity continued to expand in Q3 2023. New public companies in their first or second renewals experienced pricing and deductible reductions, while established public companies saw flat to slight decreased pricing. Pricing dropped 16.3 percent year-over-year, reflecting the sixth straight quarter of pricing decreases.
    • Canada: Capacity continues to expand and is ample for the majority of risks. Pricing on public and private companies remains competitive and savings are still possible, even after several years of premium reductions.
  • London:

    Average rate-on-line is down 22 percent and total premium spend is down 19 percent, according to Aon data. Pricing for ABC layers continued to fall, with its premium falling in Q3 by 22 percent. ABC layers are driving the overall D&O rates down. However, in Q3 there were signs that this trend was beginning to stabilize, with reductions plateauing across towers.

    • Asia Pacific: Reductions remained steady in Q3, with the average at -18 percent and total premiums at -13 percent.
    • Europe: Q3 rate trends in Europe remained level, with Q2 seeing an average program rate reduction of 21 percent; total premiums were down 16 percent on average. The average ABC rate reduction in Q3 was -18 percent.
    • UK: Strong rate reductions continue, with average rate-on-line reductions of 29 percent. Reductions were being driven by reduced ABC rates. The average ABC rate in Q3 was -35 percent.
    • Middle East and Africa: Average rate reductions in Q3 were 21.5 percent, with premium reductions at just over 20 percent. This trend appears to have slowed significantly compared to Q2. However, the change is less abrupt when comparing to the half-year average of -30 percent. ABC rate and premium reductions had average reductions of 22 percent.
    • North America: Rate reductions have stabilized in Q3, with the average reduction at 20 percent and ABC rate reductions at 16 percent. While Aon data shows 25 percent of clients purchasing additional limits, the change to overall limits is minimal.
  • Latin America:

    The D&O market is rapidly softening. New carriers are entering the space on either a direct or reinsurance basis. Premium decreases have positively impacted both primary and excess layers carriers. 2024 will likely look quite similar, despite some carriers warning that an adjustment may be necessary to avoid reaching rates prior to coronavirus (COVID-19). Clients are pushing to conduct limit adequacy or risk quantification exercises to review any limit reduction that may have occurred during the most recent hard market. Doing so will also support an expansion of the current insurance program and help search for efficiencies.

Tips to Take Advantage of a Favorable D&O Market

1. Start early with incumbent meetings.
Roughly six months prior to renewal, meet with incumbent markets. This will strengthen the relationship between the buyer and insurer and help the buyer recognize market changes that will shape the renewal strategy. Conversations will reveal the incumbent’s plan, what they are seeing on their books, key trends and if the evolving marketplace has led them to more risk-differentiating underwriting and less class underwriting, which will benefit good D&O risks. An early start will provide buyers with knowledge about whether they can rely on incumbent capacity or start the process to find new capacity.

2. Use a virtual environment and prepare for underwriting meeting.
Face-to-face meetings are valuable. However, the virtual working environment has also made it easier for the buyer’s senior leadership to connect with underwriters to tell their story more effectively — an advantage at renewals. Preparation for those underwriting meetings is especially critical, since buyers will likely have only one underwriting meeting with each insurer. Being properly prepared will allow the buyer to present the organization to underwriters in a favorable light, differentiating the company’s risk from others competing for D&O capacity.

3. Meet with new markets.
The continuing soft market has led to a host of new carriers and capacity moving into the D&O market in both the U.S. and London. Meeting early with new markets can provide a chance to understand their underwriting strategies and how they might fit with the buyer’s needs. It also provides the opportunity for the buyer to tell the company’s story in preparation for the market, kick-starting the renewal process.

4. Prepare a strong ESG story.
There are dozens of environmental, social and governance (ESG) raters providing information on companies. Often, these raters come under scrutiny regarding the reliability of their assessments.1 As ESG-related litigation continues to evolve, so does growing scrutiny among underwriters, who often rely on ratings. Therefore, businesses should have a strong ESG story in place, beyond what is provided by raters. A well-documented and accurate ESG narrative will help position an organization favorably in the marketplace. Work with a broker that is experienced in building a strong ESG narrative specific to D&O underwriters. This includes key risks and opportunities related to reporting, governance, environment and climate, people and social responsibility, and accountability.

What else is on underwriters’ minds? During the underwriting process, clients should also be prepared to address their position on the Russia/Ukraine conflict, supply chain issues, labor shortages, inflationary pressures, and the U.S. Securities and Exchange Commission’s new cyber security disclosure rule, to name a few. Learn more about how to take advantage of the soft D&O market.

1 ESG Ratings: A Compass without Direction | Harvard Law School Forum on Corporate Governance

Aon’s Thought Leaders
  • John Brosnan
    Head of Financial and Professional Services Group, Aon Global Broking Center
  • Tim Fletcher
    U.S. Practice Leader
  • Catherine Lanctot
    Canada D&O Leader, North America
  • Jennifer Thorpe
    Chief Client Officer, Financial Services, Group North America
  • Sergio Torres
    Specialty Leader, Financial & Professional Services & Cyber, Latin America

General Disclaimer

The information contained herein and the statements expressed are of a general nature and are not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information and use sources we consider reliable, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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