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D&O: Data shows risk appetite shift accelerating

Aon’s quarterly directors’ and officers’ (D&O) report gives an excellent view of conditions in the class. However, it also provides a rare data-driven lens on the level of re-underwriting and risk appetite changes that are driving the tightening of capacity in P&C.

First, the D&O pricing headlines. According to Aon, depending on how you look at it, pricing in public D&O is up somewhere in the 7-17 percent range – up sequentially from around 4-14 percent in Q1.

However, the most meaningful data disclosed was not on the level of headline rate increases, but rather on two other items: one, the level of restructuring of coverage in the quarter; and two, the breakdown of price increases by month.

For example, the number of insureds renewing coverage with the same deductible plummeted from a run-rate in the 90-95 percent range in 2016/17 to just 71 percent in Q2. Similarly, insureds purchasing the same limit and deductible fell from the high 80s to just 66 percent. Both are down sequentially (see chart).

We also note that pricing change appears to be accelerating. The average primary price increase in April was 4.9 percent versus 6.1 percent in May and 9.0 percent in June.

This chimes with reporting in The Insurance Insider, which described a shift in conditions beginning in April that has accelerated in Q3 to a level whereby pricing is up closer to 15-25 percent for loss-affected public D&O. (We note Travelers CEO Alan Schnitzer also described Q3 P&C pricing broadly as higher than Q2 at an investor event earlier this month).

Finally, it can be seen that retention has dropped somewhat but still remains high, with 92 percent of accounts renewing with the same carrier as expiring. Given the “two-tier” market structure, with a handful of carriers dominating the primary market, this remains a key metric to track for signs of competitive pressure from second-tier players looking to gain share and get a free ride on lead players pushing the overall market towards price adequacy.


This is a curtailed version of a long-form analysis into D&O pricing by sister publication Inside P&C. For the full version with all the graphics, click here.

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