Aon Directors Officers Insurance Market Insights Q1 2019

D&O insurers of Australian listed companies are now strongly entrenched in strategies to deliver a substantial upward re-alignment of the Australian D&O premium pool. 

Insurers are taking this action in the face of ongoing profitability challenges emanating from Australia’s active securities class action environment and other significant claims activity.

STATE OF THE MARKET

As D&O insurance market conditions continue to deteriorate, the Australian Prudential Regulatory Authority (APRA) has identified that, notwithstanding pricing correction in 2017 and 2018, 'premiums are still insufficient to offset the many prior years of rate reductions and inadequate premiums. 

'Further premium increases are needed to generate a sustainable rate level to cover losses' (APRA, 2018).

The evolving nature of the class action environment and the lack of foreseeability of many securities class actions is hindering some insurers efforts to accurately model future premium requirements. 

This is demonstrated by the volatility in premiums offered between insurers and is especially evident in layers of insurance purchased between the primary layer and a limit of liability of $70 million.

MODEST RISK APPETITE

Insurers’ perceptions of the current risk environment and/or the potential for multiple 'full limit' losses is also tempering some insurers appetite for participation on listed organisation D&O programmes, at lower attachment levels, at any premium.

Non-listed organisations are also experiencing some modest upward pressure on premiums based on their individual risk profiles and business sectors. Insured’s who operate within the retail, construction, energy and health sectors are subject to particularly rigorous review by insurers.

Climate change is a risk area receiving increasing focus from both regulators and advocacy groups.

OVERVIEW

• The Directors & Officers (D&O) insurance market for listed companies continues to deteriorate – Australia’s active class action environment continues to present challenges for D&O insurers.
• Premiums for limits of liability under $70 million continue to be subject to significant premium pressure – excess insurers see the risk of a securities class action claim as similar to the exposure faced by primary insurers.
• Most insureds should anticipate a minimum deductible for securities entity claims between $1-5 million for any one claim.
• D&O capacity in the Australian and London markets remains generally available; however, if securities entity coverage is required, insurers are increasingly selective and thorough in their underwriting reviews.
• Insurers appetite to cover securities entity claims for small ASX insureds – or insureds in more challenging business sectors – is diminishing.
• Looking ahead – for listed companies, upward pressure on premiums will continue. Organisations with smaller market capitalisations may see larger relative premium increases. For non-listed companies, renewals will generally see modest premium increases

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