Trouble is ahead in 2018 for carriers in the directors & officers liability insurance space, Fitch Ratings warns in a new market update. The cause: heavy competition and pricy claims trends.

“Property/casualty insurers active in the [D&O] liability insurance market may have a greater difficulty in maintaining underwriting performance in 2018 as market pricing remains highly competitive and claims trends point to meaningful challenges ahead,” Fitch said in its Feb. 23 update.

Heavy competition has led to a slow decline in premium rates “for some time,” Fitch said, and the expectation is that this will continue in 2018.

“Market capacity is relatively unchanged this year, and competition for business remains intense,” according to Fitch.

It is true that U.S. property/casualty industry results are poorer overall, and the industry is still reeling from large property-related catastrophe losses in 2017. Fitch pointed out, however, that D&O pricing won’t see any spikes as a result, with competition remaining robust.

“D&O market pricing is likely unaffected by these broad market circumstances,” Fitch said.

Claims Trends Point to Trouble

Fitch said that a growth in securities class action lawsuits could end up leaving D&O coverage with many added expenses.

There were 412 federal securities class action filings in 2017, representing a 52 percent jump over the previous year, according to data from Cornerstone Research cited by Fitch. Types of suits represented by the increase cover areas including merger objection claims, misrepresentations in financial documents or making false forward statements.

Adding to this is the reality that companies’ executive liability exposure continues to evolve and grow. Suits in this area now range from holding executives responsible for corporate crimes to cyber attack liability and legal actions involving cryptocurrencies.

Fitch said that D&O underwriters are usually larger carriers that handle multiple lines, which makes it easier to handle potential large losses due to better results in other segments. Because of this, Fitch said that there is a limited chance that D&O risks will drive insurer ratings, save for a major crisis or event.

Source: Fitch Ratings