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Survey Report

Insurance Marketplace Realities 2021 Spring Update – Financial Institutions — FINEX

Financial, executive & professional risks (FINEX)

Financial, Executive and Professional Risks (FINEX)

April 21, 2021

The financial lines market for financial institutions (FIs) has hardened and we expect to continue to see upward pressure.
Rate predictions
  Trend Range
D&O — Publicly traded financial institutions: Increase (Purple triangle pointing up) +12.5% to +20%
Side-A/DIC: Increase (Purple triangle pointing up) +10% to +20%
D&O — Private financial institutions: Increase (Purple triangle pointing up) +5% to +15%
D&O/E&O — Asset managers (excluding private equity/general partnership liability): Increase (Purple triangle pointing up) Large market: +10% to +15%
Middle market: +5% to +10%
Bankers professional liability (BPL): Increase (Purple triangle pointing up) Large market: +10% to +20%
Middle market: +10% to +30%
Insurance company professional liability (ICPL): Increase (Purple triangle pointing up) Life: +5% to +20%
P&C: +10% to +30%

Key takeaway

Rates and retentions continue to see upward pressure, but capital inflow, market expansions and corrective portfolio measures in the financial lines space are yielding a deceleration of rate increases. Buyers should keep their eye on changes in coverage terms.

Tough underwriting continues to be driven by concerns with market volatility, increased litigation costs, evolving COVID-19 risks, economic uncertainties and systemic risk. There is some positive news, though, with new excess capacity leading to a deceleration of rate increases and reinvigorating competition in the marketplace.

  • Over the past two years, insurers have demonstrated strong pricing discipline in primary and excess layers, with significant attention on right-sizing excess increased limit factors (ILFs). We anticipate that the majority of ILF corrections are behind us, and excess pricing recalibration will moderate. The corrective rate and retention actions have revived insurer interest for new business, including risks they may have declined in the past.
  • While insurers will continue to closely manage overall risk aggregation, we expect most insurers will be comfortable with the capacity they currently have deployed. We expect that capacity from new entrants, refreshed and/or expanded appetites for some insurers and a more favorable outlook on risk profiles will offset any reductions in capacity that may occur.
  • The areas most impacted by COVID-19 have been insurance company professional liability (ICPL) and employment practices liability (EPL).
  • In these areas, underwriters have incorporated more questionnaires as part of the placement process, more restrictive coverage and increased rates and retentions. These trends will likely continue throughout 2021. Communicable disease exclusions generally have not impacted financial institutions.
  • We have started to see some tightening in coverage, as well as clarification of coverage relating to silent cyber, but this trend is limited to select insurers for now. Lloyds syndicates are grappling with the recent silent cyber regulatory mandate to clearly state whether they will or will not provide affirmative cyber coverage on non-cyber policies.

The financial institution D&O marketplace continues to see rate increases, but with some moderation.

  • Insurers carefully managed their capacity and corrected rate in 2020, but many insurers believe D&O remains underpriced.
  • Financial institution public D&O median rate increases peaked in Q3 2020 and ticked down slightly in Q4 2020. For mid-year renewals, indications point to low double-digit increases and upward pressure on retentions.
  • Private D&O rate trends are slightly more favorable, in part because the focus has been on retentions instead of rate. Private financial institutions were largely spared the pullback in entity coverage seen in the commercial space.
  • Side-A insurers have sought to strengthen pricing, focusing on increasing minimum premiums, in response to derivative claims and increased litigation costs. Side-A minimum premiums are in the range of $5,000 to $7,000 per million of limit.
  • Excess recalibration is expected to taper, with lower ILFs now averaging 70% or more and inverted ILFs (decreasing with attachment) largely being eliminated.
  • Merger and acquisition activity among financial institutions slowed in much of 2020 due to the pandemic but picked up at the end of the year. Inorganic growth strategies are being reviewed as institutions continue to face compressed margins, declining fees, a need for digital transformation and an increasing need for scale and product diversification. Strong signals indicate that 2021 will be an active year for M&A. Underwriters are focused on acquisition and divestiture activities and how that changes the risk profile of insureds. Extended reporting period (tail) pricing factors have also increased.

The professional liability (E&O) marketplace varies by subsector.

  • Asset managers: Asset managers continue to be viewed favorably. The market remains stable as an abundance of capacity moderates rate increases. Retentions are generally remaining flat, although middle market risks are seeing minimum retentions of $250,000. Middle market asset management is a targeted growth area for insurers. However, the possibility of a repeat of the Reddit/GameStop short-squeeze is keeping insurers alert. If there are other instances of extreme market volatility emanating from social media platforms, initial responses from insurers may drive premium increases back up.
  • Insurance companies: While some sectors are seeing new entrants spark competition, the market for insurance companies has not improved. Most primary carriers are using the lack of viable alternatives to push for higher retentions. Most carriers have already reduced limits for ICPL, and additional scrutiny awaits buyers hoping to place layers of $10 million or more. Markets are adding exclusionary language to cap pandemic business interruptions. Life insurers’ investment portfolios have been subject to greater scrutiny, while the issue of “cost of insurance” remains a significant concern. Sales and marketing coverage for life insurers is difficult to obtain, with many markets affording only sublimits, higher split retentions or excluding the cover altogether.
  • Banks: BPL continues to be challenged by high claim frequency and severity. Primary capacity continues to be very limited with some insurers pulling back from banks with more than $10 billion in assets. Some excess BPL markets have shied away from new business in light of COVID-19-related risks. BPL premiums continue to trend higher, with double-digit increases, particularly for those facing COVID-19 uncertainty regarding their credit and loan portfolios. Retentions are being reexamined and may be increased to mitigate premium increases. Broad coverage is generally still available, though some insurers are reassessing their portfolio; some may be less willing to expand the scope of cover for lending liability, regulatory and investigations and may be reluctant to narrow exclusions.

We continue to monitor several coverage trends.

  • Boundary cyber risk: More insurers are adding cyber and privacy exclusions on non-cyber lines (e.g., E&O, EPL) to clarify coverage. D&O insurers are also asking more cyber-related underwriting questions. As insurers continue to assess their silent cyber exposures, we recommend reviewing any new limitations or exclusions alongside cyber policies to ensure that coverage is being addressed appropriately.
  • Extended reporting periods (ERP): Some insurers are considering removal of pre-determined ERP options where allowable by law. There are strategies that can be deployed to address this trend.
  • Shareholder derivative demand investigation (SDDI) costs: Some insurers are looking to reduce or remove coverage for SDDI costs due to increased losses. Insureds may be able to maintain meaningful SDDI sublimits by securing drop-down sublimits higher up the tower.
  • Cost of corrections: Some insurers have tried to limit coverage to only liquid asset classes and/or trading errors. The recent stock price manipulation drama has brought this coverage under heightened scrutiny. Reductions in coverage can be mitigated with early negotiations on wording and, if needed, increased retentions.


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..

Each applicable policy of insurance must be reviewed to determine the extent, if any, of coverage for COVID-19. Coverage may vary depending on the jurisdiction and circumstances. For global client programs it is critical to consider all local operations and how policies may or may not include COVID-19 coverage. 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 and/or other professional advisors. Some of the information in this publication may be compiled by third-party sources we consider to be reliable; however, we do not guarantee and are not responsible for the accuracy of such information. We assume no duty in contract, tort or otherwise in connection with this publication and expressly disclaim, to the fullest extent permitted by law, any liability in connection with this publication. Willis Towers Watson offers insurance-related services through its appropriately licensed entities in each jurisdiction in which it operates. COVID-19 is a rapidly evolving situation and changes are occurring frequently. Willis Towers Watson does not undertake to update the information included herein after the date of publication. Accordingly, readers should be aware that certain content may have changed since the date of this publication. Please reach out to the author or your Willis Towers Watson contact for more information.


Heather Kane
U.S. Head of FINEX Financial Institutions

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