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Survey Report

Insurance Marketplace Realities 2021 Spring Update – Directors and officers liability

Financial, Executive and Professional Risks (FINEX)

April 21, 2021

Rates, terms and capacity will continue to see upward pressure well into 2021, yet we see signs of activity that could lead to stabilization.
Rate predictions
  Trend Range
Stable risk profiles (modest COVID-19 exposure)
Public company – primary: Increase (Purple triangle pointing up) +10% to +40%
Public company – excess layers: Increase (Purple triangle pointing up) +15% to +65%
Private and not for profit – overall: Increase (Purple triangle pointing up) +5% to +45%
Side-A/DIC: Case-by-case, with minimum premiums impacting most risks
Challenged risk profiles
High COVID-19 exposure: Challenged industries/companies Case-by-case basis; large potential increases; may not be enough willing capacity

Key takeaway

Rates, retentions and terms continue to see upward pressure, but capacity inflow in the public company space is yielding a deceleration of rate increases.

The unprecedented economic environment continues to impact a profitability-challenged directors and officers (D&O) liability market, fueling underwriter uncertainty and concerns about insureds’ liquidity and systemic risks. Nevertheless, new excess capacity in 2021 may lead to stabilization.

  • Sustained hard market conditions, transitioning to a decelerating rate environment: An already-hardened D&O market faces heightened concerns fueled by continued economic challenges.
    • Insurers managed their capacity and corrected rate in 2020, but many insurers believe the product remains underpriced.
    • Offsetting these challenges is new excess capacity of approximately $100 million (or more) in the public company D&O space, yielding a moderation of rate increases versus the peak increases we saw in 2020. This capacity inflow should lead to additional buyer leverage and an enhanced ability to fill capacity holes.
    • As expected, more favorable risks are the initial beneficiaries of conditions brought on by new capacity. More challenged risks continue to experience sustained hard markets challenges.
  • Uncertainty: COVID-19 remains a cloud over the prospect of economic recovery. Vaccination of populations is promising, but mutated virus strains and social/political tensions around health and safety measures present issues over the timing and pace of business re-openings and the resurgence of employment and economic growth.
  • D&O underwriter focus: Financial strength (especially liquidity), claim history, industry and responses/resilience to COVID-19.
  • D&O underwriting concerns: Financial pressures, bankruptcy trends, pandemic impact, antitrust allegations, post-election uncertainty, loss-cost escalation, emerging exposures such as environmental, social and governance (ESG), cyber and privacy, social inflation, event-driven claims and systemic exposures.
  • IPOs and special purpose acquisition companies (SPACs): The sustained growth in traditional public offerings, in addition to SPAC formations and follow-on business combinations, has led to heightened underwriter uncertainty.
    • Litigation frequency around SPACs and business combinations (de-SPACs) remains relatively low, but is beginning to accelerate, as filings in the first quarter of 2021 exceeded the total number of filings in 2020.
    • Anticipate high retentions, underwriter scrutiny, hard-market pricing and conservative terms to continue for the foreseeable future. Purportedly creative policy options are available in the market, but they may not always lead to desired terms and conditions.
    • Conferring with D&O coverage specialists is a critical part of any IPO, SPAC and de-SPAC transaction.
  • Private and non-profit companies: Rate increase percentages have leveled since 2020. Most programs can find adequate capacity, but for certain segments and larger programs, willing capacity can be sparse.
    • Healthcare and higher education clients are seeing a focus on antitrust exposures and limited capacity offered by carriers.
    • Carriers continue to evaluate aggregate capacity and limit their exposures to a single risk across all management liability product lines.
  • Side-A: Predictions on across-the-board rate changes for Side A placements have become less reliable. Instead, we are experiencing lead Side-A minimum premiums in the range of $5,000 to $6,000 per million of coverage, regardless of expiring rate. Increases may, therefore, be more or less severe depending on the insured’s expiring pricing.

Underwriting: D&O portfolio adjustments may continue into 2021.

  • The recent trend of reductions in overall capacity has begun to moderate in the face of new capacity in the public company space.
  • Excess pricing recalibration may moderate as well.
  • Buyers may face pressure for higher attachment/retentions.
  • Terms are tightening.
    • Entity coverage: Targeted pullbacks especially for large (greater than $1 billion in annual revenue) privately held companies
    • Exclusions: Cyber/privacy, insolvency and professional liability
    • Derivative investigation sublimits: pullbacks or removals
  • Some buyers may be particularly challenged.
    • Non-U.S. parent, U.S. D&O exposure (due to complexities of compliance across jurisdictions, internal controls and varying carrier appetites for U.S. and non-U.S. D&O risks)
    • Large private and private equity portfolio risks
    • Certain industries: oil and gas, healthcare, life sciences, cryptocurrency, cannabis, retail, travel and hospitality, and higher education
    • Liquidity challenged and pre-restructuring/bankruptcy risks
  • In a normal market, post-restructuring risks may be seen by some carriers as relatively clean risks, but in this environment, they are more often viewed as challenging risks, and willing capacity may be hard to find.

We continue to monitor several trends and exposures.

  • Securities class actions: Frequency trends ended 2020 down year-on-year, yet remained at historically high levels. Traditional core filings ticked lower than 2019 levels, but remained consistent with 2017 and 2018 filings. In contrast, M&A objection litigation decreased to its lowest level since 2016. This may be due, at least in part, to decreased M&A activity itself through much of 2020; however, we note that M&A activity rebounded in Q4. Severity trends, both average and median settlements, were generally consistent year-on-year when removing aberrations. (Cornerstone Research, Securities Class Action Filings, 2020 Year in Review, and Cornerstone Research, Securities Class Action Settlements, 2020 Review and Analysis.)
  • Influence of social media on stock value fluctuation: The power of social media to manipulate stock valuation and trading recently emerged like a tidal wave, as we saw swift and significant increases in the stock prices of several high-profile companies. To what degree might this present risk to affected companies and their directors and officers?
  • Board diversity: Board level diversity, a key element of the governance component of ESG, has itself become the subject of legislation in a growing number of jurisdictions. In addition, the Securities and Exchange Commission and Nasdaq have been examining diversity disclosure requirements in public filings, which has the potential to lead to increased regulatory activity. The issue has also become a focus of derivative litigation against several high-profile companies, creating heightened underwriter scrutiny into board composition and corporate inclusion and diversity (I&D) practices.
  • Network security and privacy: Oversight and disclosures relating to network security and expanding global privacy laws remain a heightened D&O risk. As evidenced by recent prominent events, exposures include regulatory investigations and proceedings, as well as litigation, including securities class actions.
  • Board duty of oversight: Side A coverage has become an even more important last line of defense for directors and officers. The Delaware Supreme Court’s 2019 decision in Marchand v. Barnhill, 212 A.3d 805 (Del. 2019), opened the door to derivative claims based on critical failures of board oversight. In 2020, the plaintiffs’ bar began to take advantage of this new opportunity by successfully pleading other oversight claims. With derivative claims a key driver of Side A loss, carriers have flagged oversight claims and mega derivative suit settlements in 2019 and 2020 in support of their efforts to push Side A rate and terms.
  • Restructuring/bankruptcy/insolvency: Many restructurings in 2020 and 2021 have been consensual or largely consensual. From a D&O perspective, a consensual restructuring may present materially less risk. Some insurers can and do take this into account. Nevertheless, bankruptcy claims can be among the most severe. Companies facing restructuring or bankruptcy should seek expert D&O insurance advice in advance of any filing, where possible, as policy wordings unique to the risk can impact the extent of policy recovery when needed.


Willis Towers Watson hopes you found the general information provided in this publication informative and helpful. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal advisors. In the event you would like more information regarding your insurance coverage, please do not hesitate to reach out to us. In North America, Willis Towers Watson offers insurance products through licensed subsidiaries of Willis North America Inc., including Willis Towers Watson Northeast Inc. (in the United States) and Willis Canada, Inc.


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