US D&O premiums decrease in H1: Fitch

U.S. directors and officers liability direct written premiums fell 8% in the first half of this year, while direct earned premiums declined by 16%, as rates continued to soften amid increased competition, Fitch Ratings Inc. said Thursday.

Further likely price deterioration will inevitably have an adverse effect on D&O performance, Fitch said in a note.

The segment’s direct loss ratio rose to 51.2% in the first half, up slightly from 50.7% for full-year 2023. This corresponds with an estimated direct combined ratio in the mid-to-high 90% range, Fitch said.

“D&O pricing is running counter to most other U.S. commercial lines product segments that continue to report ongoing positive price movement, albeit at a lower magnitude relative to recent years,” Fitch said.

Pricing declines accelerated to 6.5% in the second quarter of 2024, from 5.5% in the first quarter, based on Aon PLC’s latest D&O market index.

D&O underwriters are still benefiting from prior substantial price increases from 2019 to 2021 that fostered a return to strong profitability, Fitch said.

The volume of federal securities class-action litigation filings — a primary source of D&O claims — remained approximately 45% lower in 2023 relative to 2019 pre-pandemic levels, due largely to continuing sharp declines in merger objection-related claims, according to research from National Economic Research Associates Inc.

Full-year 2024 class action filings are expected to fall slightly below last year’s levels, NERA projects.

“Recognizing when D&O pricing declines below levels consistent with an adequate return on capital is a difficult task,” Fitch said. The D&O segment continues to generate favorable underwriting results despite the ongoing decline in written and earned premium volume, it said.