Canadian Underwriter

D&O market growing: Willis

April 22, 2004   by Canadian Underwriter

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The troubled directors’ and officers’ (D&O) market is actually growing in capacity, with “competition and creativity” being witnessed among carriers, says a new report by international brokerage Willis.
While the past two to three years have seen skyrocketing rates and extremely limited capacity, ten new carriers have since entered the market and existing players are increasing their capacity levels.
However, many challenges remain in the segment, including a continuation of record-breaking claims (there are 1,400 outstanding D&O securities claims) and the rise of new claims from “tag-on” fiduciary relative to pension plan stock holdings and mutual funds investigations. As well, the new Sarbanes-Oxley requirements may cause a rise in D&O and fiduciary claims, Willis notes.
The industry still could pay out more than US$25 billion based on outstanding claims, against premiums of US$6.5 billion annually, based on 2003 numbers.
The Willis report also addresses the property market, where rates are leveling and even dropping for good accounts on the back of capacity growth and “over-correction” applied to some accounts in the most recent hard market. However, some risks are not seeing the light of the soft market, including those in earthquake zones, windstorm regions and other high hazard zones.
Terrorism risk also remains an outstanding issue, with Willis advocating extension of the Terrorism Risk Act (TRIA) program through the “optional year” of 2005 and beyond. “Buyers of terrorism insurance should let their voices be heard, as the expiration of TRIA would lead to impairment of commercial insurance offerings for the peril of terrorism.”
In the casualty market, Willis sees growth in the umbrella and excess lines, with continued pressure on primary risks. In particular, high-risk segments such as pharmaceutical, oil and gas and healthcare industries will see little relief. Workers’ compensation and other primary casualty writers could see further balance-sheet challenges and pressure to withdraw in 2004.

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