Uncertainties marring adequacy for D&O pricing, market stability

NEW YORK – Experts at the Professional Liability Underwriting Society D&O Symposium on Tuesday said they are skeptical rates for directors and officers liability coverage can continue to stabilize this year due to volatilities such as changes in the regulatory landscape, the rising number of securities class actions and increasing settlement costs.

The panel also expressed uncertainty about how the imposition of tariffs against China, Canada and Mexico will impact U.S. businesses.

“I don’t think we understand the full ramifications of tariffs. There’s a direct correlation between tariffs and inflation, between tariffs and consumer spending, and between tariffs and our position in the global market. There’s a lot of factors that are going to be impacting what companies in the U.S. and publicly traded companies are going to look like over the next few years,” said Ziad Kubursi, head of financial institutions, executive liability and transaction risk units, financial lines for Hartford Financial Services Group Inc.

Panel moderator Jaimie Hunter, senior broker at Lockton Re, said currently depressed rates, increasing broker commissions and a changing competition landscape are forcing D&O insurers to price coverage adequately.

While Mr. Kubursi agreed that D&O pricing is currently inadequate, he was optimistic that changes in the U.S. Securities and Exchange Commission and the potential for less regulation by the agency could positively impact the market.

Although the pricing environment is cyclical in nature, he said it is hard to gauge what part of a cycle the market is in because it takes so long for “processes to come to fruition.”

The panelists expressed concerns over the rise of securities class action filings and derivative lawsuits.

Securities class actions typically take up 60% to 65% of a publicly traded company’s D&O exposure, but derivatives are “all over the map” because of social inflation, said Brian Zink, senior vice president and head of Everest Specialty Underwriters and U.S. financial lines.

“When the claim side of the equation keeps changing, it’s very hard to model pricing,” said Jeremie Saada, head of U.S. executive risk for Beazley PLC.