D&O claims related to corporate acquisitions cause ‘material losses’ for insurers: Fitch

Premiums for directors and officers liability insurance grew last year, but carriers have been hit by claims related to claims related to mergers and acquisitions, according to a Fitch Ratings Inc. report, Director & Officers Liability Insurance: Market Update 2013.

When analyzing aggregate underwriting results across the industry, direct written premiums for D&O liability grew by about 6% in 2012, according to Fitch. Fitch added direct loss ratios across the industry improved in 2012 by three points, to 48%. 

“Key sources of claims relate to securities litigation and regulatory actions and settlements,” Fitch stated. “More recently, claims related to mergers and acquisitions have been a source of material losses for D&O insurers. Many large D&O claims arise from episodes of corporate malfeasance or regulatory investigations that receive wider attention in the marketplace.”

The rating firm suggested that an analysis of corporate financial statements, in the “other liability-claims made” category, show that accident year loss ratios “have been relatively stable over the last five years, but have risen to levels well above highly profitable years in the mid-2000s.”

Additionally, industry combined ratios in other liability–claims made were more than 100%.

At the end of 2012, according to Fitch, the largest direct writers of D&O liability in the U.S. were American International Group Inc., XL Group Ltd., The Chubb Corp., HCC Insurance Holdings and Travelers Corp.