Canadian Underwriter

D&O remains tight in North America: Tillinghast Towers Perrin

January 27, 2004   by Canadian Underwriter

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The average cost of directors’ and officers’ (D&O) cover in North America rose by 33% during 2003, according to a study just released by Tillinghast Towers Perrin. Based on feedback from its “2003 Directors & Officers Liability Survey”, the consultants believe that this year will also draw price increases of 30%-plus in D&O for many business sectors, suggesting that the “hard market” in liability coverage is far from over.<br>
Tillinghast’s market survey, which involved just over 2,100 North American corporate insureds with roughly 3.3% entities being Canadian companies, suggests that the D&O market did show signs of price stabilization toward the end of 2003. However, the survey did not point to an increase in market capacity with cover availability likely to remain tight during the first half of 2004, the consultants predict.<br>
Notably, the “median” increase in pricing of D&O coverage last year was the highest on record as monitored by Tillinghast. While employee lawsuits were on average the lead cause of D&O claims based on the survey responses, companies with shareholders exceeding 500 in number saw most of their claims arise from shareholders themselves. Furthermore, the survey suggests that companies engaged in mergers and acquisitions (M&As) are more prone to a D&O loss. Tillinghast’s 2003 survey indicates that 27% of U.S. respondents who had been involved in a D&O claim had been involved with an M&A or corporate restructuring at the time the finding from these results is that companies facing such exposures are more than twice as likely to have at least one D&O claim, according to the consultants.<br>
Tillinghast believes that there should be moderate improvement in market capacity this year, with new entrants coming into the D&O field. However, pricing for the D&O line will remain hard, the consultants, surmise, with some industry sectors still likely to see price hikes of 30%-plus for 2004 renewals. Tillinghast also cautions that, while capacity may be less of a concern this year, corporate insureds will still find tight terms and restrictions on coverage availability.<br>

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