D&O liability market recovery uncertain

A D&O liability market recovery is far from certain, and underwriters will need to allocate their capital wisely to stay in the business, panelists told a symposium of the Professional Liability Underwriting Society (PLUS).
PLUS is an international, non-profit association with chapters in the United States, England and Canada and has more than 6,000 members worldwide. It provides information and educational opportunities and programs on professional liability.
Looking at the market’s performance over the last decade, Marc Siegel, CFRA director of research, noted that the period from 1998 to 2002 had been extremely unprofitable. During this time, the largest D&O carriers reporting combined ratios of more than 100; the primary market’s results would have been even worse during this period had it not been for some of the losses absorbed by the reinsurance business, Siegel said.
While the results of recent accident years have shown some improvement, it is still not clear whether they will remain that way. “The recent accident years are not fully seasoned and there could be additional deterioration as pending litigation unfolds,” Siegel observed. “We are not sure if 2003 and 2004 will ultimately be profitable.”
According to Joseph Taranto, the chief executive officer of the Everest Re Group, Ltd, the conclusion to be drawn from these results is that rates during the 1998-2002 period had been extremely poor. “Many of the deals struck in those days didn’t lead to people sharing and the reinsurers got the short end of the stick, so the numbers were ugly,” he said. “Recent years are better. Time will tell whether they will turn out to be profitable.”
Craig Landi, senior vice president of the Arch Insurance Group, agreed experience had been very bad for D&O insurers in the 1990s. “I don’t think anyone could out-select the market through the late 1990s and early 2000s.” But the market had benefited from the E&O coverage in place, particularly on the reinsurance side. “Had it not been for that, the results would have been a lot worse for D&O insurers,” Landi said.
Greg Flood, the chief operating officer of AIG/National Union, noted that much more data and information is available today than in the past to help in the underwriting process. “We have a great deal more information than we did before that we can draw from to make decisions,” he said. “I still think the key is how to use that information.”
Michael Sapnar, the senior vice president and chief underwriting officer of Transatlantic Reinsurance Company, added that portfolio diversification and allocation of capital is key for underwriters. “We now have to look at the interaction of the different lines of business, what is correlated and what is not correlated.”