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Survey Report

Insurance Marketplace Realities 2023 Spring Update – Directors and officers liability

April 28, 2023

Abundance of capacity and a stabilized securities litigation environment continue to drive competitive market dynamics.
Financial, Executive and Professional Risks (FINEX)
Rate predictions: Directors & officers liability
Trend Range
Stable risk profiles
Public company — primary Neutral decrease -10% to flat
Public company — excess layers Decrease -15% to -10%
Private, not-for-profit — overall Decrease -15% to -10%
Side A/DIC Decrease -15% to -10%
Challenged risk profiles
Non-U.S. parent, U.S. exposures Case-by-case basis; potential increases; may experience limited interest
IPOs and SPACs Case-by-case basis; potential increases; may experience limited interest
Challenged industries Case-by-case basis; potential increases; may experience limited interest

Broader market conditions have improved since the peak of the hard market in Q3 2020. Moderation has been significant and is expected to continue through the remainder of 2023.

  • Impact of newer capacity
    • The influx of capacity into the market since late 2020 created competition and yielded rate deceleration throughout 2021 and 2022. In 2023, we have seen flattened-to-reduced D&O premium outcomes.
    • Recent markets initially generated rate relief in the excess layers; however, as markets seek to remain competitive, more carriers, including the more recent markets, are providing alternative primary competition and leverage.
  • Economic uncertainty: Recovery from the lingering pandemic has yielded economic growth; however, D&O underwriters remain concerned with uncertainties arising from inflation, interest rates, supply chain issues, the scaling back of government subsidies, corporate insolvencies and global hostilities.
  • D&O underwriter focus: Carriers continue to scrutinize financial strength (especially liquidity); the management of guidance in the context of inflation and heightened interest rates, supply chain and customer demand, industry, claim history, regulatory uncertainty, loss-cost escalation, cyber and privacy, human capital and labor retention, systemic exposures, and conflicting shareholder and political pressures surrounding environmental, social and governance (ESG) practices.
  • Private and non-profit companies: The moderation of rate increases in 2021 and 2022 has ended, with most insureds seeing flat pricing to modest decreases. High-risk profiles and challenged industries may still see increases to pricing/retentions; however, this will be determined on a case-by-case basis.
    • Primary: Insureds with low and stable risk profiles are seeing enhanced competition, with a minimum of flat renewals and decreases when marketed. The market for high and/or distressed risk profiles remains challenging.
    • Excess: For larger risks, excess markets have recalibrated increased limit factors (ILFs).
    • Retentions: For challenged risks and those with large exposure increases, carriers continue to press for higher retentions. Minimum retentions continue to be scrutinized but have moderated over the past six months. Severity of increases most often depends on prior renewal increases and the need, if any, for continued correction.
    • Increased deployment: Carriers are willing to regularly deploy capacity for preferred risks. Additional capacity can be found for more risks than in recent quarters. This is having an impact on market conditions more broadly, especially for more desirable risks.
  • Side A: Competition among insurers for Side A business has been reinvigorated after a protracted period of rate increases.
  • Continued rate decreases: We expect rates to continue decreasing into softer market conditions ahead, including the lowering of ILFs, reflective of more customary pre-hard market ILFs.
  • Challenged risks: Some risk profiles are still viewed as challenged, including:
    • Non-U.S. parent with U.S. exposures
    • Liquidity-challenged and pre-restructuring/bankruptcy risks
    • Challenged industries, e.g., banking, oil and gas, healthcare, life sciences, higher education, cryptocurrency, cannabis, retail, restaurants, sports/entertainment
    • IPOs and SPACs

Several trends and exposures bear watching.

  • Silicon Valley Bank and related banking industry D&O risk: The failures of Silicon Valley Bank and Signature Bank have resulted in claims against them and the possibility of claims against other entities which have suffered setbacks as an indirect result. The biggest potential exposures to the various entities affected or potentially affected are likely to be bankruptcy, securities fraud class actions, FDIC and/or creditor claims, and government investigations. As of this writing, the severity of the phenomenon outside of the banks which were directly involved has mostly dissipated due to government intervention in the backing of deposits. Still, we will monitor developments around bank stability, particularly as to any impact on the economy and markets more broadly.
  • Securities class action (SCA) filing frequency and severity: SCA filings in 2022 decreased modestly year-on-year to 208 filings, marking the third straight year of diminished filings. Similarly, traditional SCA filings that do not involve M&A or Section 11 allegations (151 in 2022) are also below the 10-year (2013-2022) average of 168. In contrast, average and median settlements have increased year on year, from $22 million and $8 million in 2021, respectively, to $38 million and $13 million in 2022. Nevertheless, the average settlement is still less than the 10-year (2013-2022) average of $42.1 million.
  • ESG: Organizations continue to face pressures to address ESG from operational, cultural and investment perspectives. SEC rules around climate exposure disclosures for public companies were proposed in 2022, rules we do not expect to become final as drafted or without significant litigation challenge. In addition, anti-ESG backlash at state and federal levels have presented conflicting pressures. These exposures have resulted in increased underwriter scrutiny into practices more broadly.
  • Alignment of legal protections and exposures for corporate officers
    • Expansion of “exculpation” protections to officers: In August 2022, the Delaware General Corporations Law was amended to permit Delaware corporations to provide officers with exculpation protections for personal monetary damages resulting from a breach of fiduciary duty in certain forms of litigation. The modification addresses a previous discrepancy wherein corporate directors could be exculpated from certain breaches of duty, but corporate officers could not. These new protections are subject to limitations that call into question the amendment’s practical impact. For example, like directors, officers would not be subject to exculpation protection in shareholder derivative litigation, perhaps the more customary form of action alleging breach of fiduciary duty against directors and officers.
    • In re McDonald’s Corporation Stockholder Derivative Litigation: In January 2023, the Delaware Court of Chancery held that the Caremark duty of oversight extends to corporate officers as well as directors. The decision is a not-unexpected step toward reconciling the duties and defenses of officers with those of directors. The court itself went so far as to theorize that directors could act preemptively by bringing claims against officers themselves. This, in fact, occurred in a subsequent decision in the same case, issued March 1, 2023, wherein this defense led to the directors’ dismissal. The complexity of these types of actions and defenses could lead to D&O coverage issues, particularly application of the Insured v. Insured exclusion. As a result, companies and their directors and officers may see a need for higher limits, particularly in their Side A DIC towers, which mostly do not have Insured v. Insured exclusions.
  • SEC executive compensation final rules
    • In 2022, the SEC issued final rules relating to executive compensation. The first rule implemented “pay versus performance” disclosure requirements mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The rule requires issuers to disclose the relationship between executive compensation actually paid and the company’s financial performance.
    • The second mandated that exchanges establish rules requiring issuers to adopt compensation recovery, or clawback, protocols where incentive compensation was based on erroneously reported financial information which required some level of restatement. Notably, clawback is required without regard to any misconduct or fault on the part of the specific executive officer.
    • Whether adoption of the final rules results in an increase in executive compensation D&O claims in 2023, of course, remains to be seen.
  • IPOs, SPACs: Initial public offering activity in 2022 was down substantially year on year, from 968 offerings in 2021 to 118 in 2022 (86, or 73 percent of which were SPAC IPOs). A downward trend is expected to continue due to proposed SEC rules and government scrutiny into SPACs and de-SPAC combinations. Yet, related SCA filings persist at high levels relative to offering activity, with 24 SCA filings in 2022, compared with 33 in 2021. We also have observed that several SPACs have been unable to secure acquisition targets with contractual deadlines to do so approaching. Although a small number of lawsuits has been filed in connection with this development when steps had been taken toward an unconsummated combination, we have not observed the phenomenon to be widespread. D&O market conditions for SPAC and de-SPAC combinations remain more challenging compared to traditional public company risks, but they have improved since peak hard market conditions in late 2020.
  • Restructuring/bankruptcy/insolvency: Chapter 11 bankruptcy filings increased in 2022 over 2021, but only by a modest 1.7%, from 4,836 filings in 2021 to 4,918 in 2022. The figures come in contrast to expectations that an end to government subsidies in 2022, coupled with higher interest rates, inflation, and concerns for slower economic growth, would give rise to increased filings. We continue to monitor these developments, as bankruptcy claims, which impact both private and public companies, can be among the most severe.
  • SEC enforcement actions and whistleblowers awards:
    • In FY 2022, the SEC filed 760 total enforcement actions, a 9 percent increase over the prior year. In its annual report, the SEC noted its focus on “individual accountability,” stating “Individual accountability is a pillar of the SEC’s enforcement program. Similar to prior years, in fiscal year 2022, more than two-thirds of the SEC’s stand-alone enforcement actions involved at least one individual defendant or respondent.”
    • In FY 2022, the SEC awarded approximately $229 million in 103 awards, making FY 2022 the SEC’s second highest year in terms of dollar amounts and number of awards, second only to 2021. Since the beginning of the program, the SEC has paid more than $1.3 billion in 328 awards to individuals for providing information that led to the success of SEC and other agencies’ enforcement actions.
    • D&O coverage for government investigations and proceedings is generally limited. Still, related defense costs and expenses can be quite severe. Consequently, companies and their brokers should evaluate the extent of regulatory coverage that can be secured and, where appropriate, negotiated.
  • Proposed SEC cybersecurity rules: The SEC unveiled proposed rules in March 2023 designed to improve cybersecurity preparedness on the heels of increased threats against U.S. securities markets. The rules require broker-dealers, clearing agencies, national securities exchanges, among others, to implement written cybersecurity policies and procedures, disclose significant cyber incidents, and maintain cybersecurity records. The proposed rules remain subject to finalization and potential legal challenges. If finalized, the rules could give rise to D&O risks relating to the accuracy and adequacy of such mandated disclosures, as well as costly regulatory compliance.


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 entities, including Willis Towers Watson Northeast, Inc. (in the United States) and Willis Canada Inc. (in Canada).


D&O Liability Product Leader
FINEX North America

Management Liability Coverage Leader
FINEX North America

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