The last few years have been a wild ride for those working in the directors & officers (D&O) sector of the industry.

To discuss this, Intelligent Insurer held a group discussion on the Re/insurance Lounge, the on-demand platform for interviews and panel discussions with industry leaders. Joining us on the call were Sridhar Menyem, director of industry and research analytics at AM Best; Paul Shore, chief executive officer of Tegron; Yoel Brightman, managing director of Rising Edge; and David Ritchie, executive director of D&O at Gallagher.

Some background: in September, Fitch Ratings looked at the industry’s growth. Within the US, Fitch found that while direct written premiums remained fairly steady for the years 2015 to 2018, measuring $6,429 million, $6,435 million, $6,457 million, and $6,391 million in those years, their growth in 2019 and 2020 shot up to $7,650 million and $10,780 million, respectively. More saliently, premiums written in H1 2021 were $6,181 million, up from $4,130 million in H1 2020.

“The last few years have created a dislocation,” Shore said. “It’s been well known that there’s been a long cycle for D&O over the last seven years, and it was probably very underpriced between 2011 and 2018. That’s caught some insurers out.

“That dislocation, the sharp retraction of supply while demand stayed the same, and those supply gaps created opportunity with a sharp increase in rates, a tightening of terms, and some correction on climate tensions and deductibles.

“As the traditional market stepped back that created an opening for new insurers to come in and fill the void.”

Slower growth That type of growth is impressive, but the panel were circumspect, pointing to a slowing down of its growth.

Menyem said: “In terms of premium growth, between 2019 and 2020, we saw direct premiums grow from $6.5 or $6.6 billion to $11 billion in the US. We attribute most of that to increases in exposure and in rates.”

He added: “If you look at the quarterly filings of the US D&O market, comparing Q4 2020 against Q4 2019, there was a 65 percent growth in premiums. Then, comparing Q1 2020 compared to Q1 2021, it was around 59 percent. Between Q2 2020 and Q2 2021, it rose only 42 percent. I think prices are moderating and we’ll hit a stable point soon.”

The panel were broadly divided on the sustainability of growth. Ritchie was adamant that such increases as recorded by Fitch would not remain constant. “It’s not sustainable,” he said. “You had massive rate increases at the beginning of the year while you had a very buoyant US market last year.

“Special purchase acquisition companies (SPACs) and De-SPACs were one element, but you also had multiple initial public offerings (IPOs), with companies doing that earlier than before. If you go back three years, there was almost a historic low of public companies on New York and the NASDAQ.

“It’s more realistic now, but the amount of SPACs looking for deals to take companies or organisations public, alongside the amount of IPOs this year—I don’t see that continuing in 2022 and 2023 at the rate they have been.”

Brightman offered a more-nuanced take. “With regard to US SPACs and De-SPACs, there’s been a pattern—and it’s one that starting to grow in Europe—where the enormous increase in SPACs listed has driven a lot of litigation. That’s been driving and increasing prices.

“It’s also attracting some new entrant capacity. There are other dynamics—ESG concerns have been driving litigation in the US, and there are concerns over the COVID-19 pandemic and the post-pandemic recession environment. There are distractions to people going wild and reducing prices and driving in terms of appetite and line size.”