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Survey Report

Insurance Marketplace Realities 2023 Spring Update — Financial institutions - FINEX

April 28, 2023

Competition among insurers persists across all lines for financial institutions (FIs) resulting in rate stabilization, and for certain classes of business, rate decreases.
Financial, Executive and Professional Risks (FINEX)
Rate predictions: Financial institutions – FINEX
Trend Range
D&O — Publicly traded financial institutions; Primary Neutral decrease increase -5% to +2.5%
D&O — Publicly traded financial institutions; Excess/Side A Neutral decrease -10% to flat
D&O — Private financial institutions Neutral decrease -10% to flat
D&O/E&O — Asset managers (excluding private equity/general partnership liability) Neutral decrease -5% to flat
Bankers professional liability (BPL) Neutral increase Flat to +5%
Insurance company professional liability (ICPL) Neutral increase Flat to +10%

Market dynamics continue to be very competitive globally, with robust capacity and healthier portfolios as insurers strive to meet growth targets.

  • With the highest number of insurers in the management and professional liability space that we have seen in years, and unchanged or reduced demand for insurance, the market remains ripe for a competitive environment in 2023. However, we may see moderation in rate reductions in the second half of this year if rates continue downward through Q2 2023.
  • In our last report in December 2022, we projected softening conditions through Q1 2023, with potentially some flattening in Q2 2023. Our predictions have played out; however, we expect any flattening to likely not occur until after Q2 2023, unless turbulence in the banking sector and market volatility spike sooner.
  • The competitive environment cuts across the U.S., Bermuda and U.K. markets, as well as the European market. The U.K. markets and syndicates and Bermuda markets are eager to participate on more U.S. programs.
  • IPO and SPAC volumes were down significantly in 2022, from the 2021 frenzy, and volume has continued to fall in Q1 2023. This was a source of strong new business in 2021 for insurers and that pipeline of new opportunities has largely dried up. There are some hopeful outlooks that there is a turnaround for IPOs later in 2023 when and if the market stabilizes and we see companies who had postponed IPOs revisit these.
  • Premium cost savings are generally not being used to purchase higher D&O or E&O limits, but in some cases, they may be, such as in M&A and post-IPO programs where it was not cost-effective to have purchased higher limits at the time of the listing. Premium savings may be reallocated toward cyber coverage, where the market is now more favorable. Premium savings may also be used to offset rate increases on other coverage lines (i.e., property).
  • We have seen an uptick in claim volume in Q1 2023 suggesting that the lull in claim activity from the pandemic is in the rearview mirror.

The unexpected failure of two U.S. banks, voluntary shutdown of a bank and takeover of a large global bank all within a few weeks, have a widespread effect on financial markets.

  • While the banking crisis from March 2023 has stabilized, it is fair to ask if the worst is behind us; was the crisis limited to a few banks with unique business models; and how will these events disrupt the global economy on a longer-term basis? Investors and analysts, as well as insurance underwriters have sharp eyes on the Q1 2023 earnings of banks to shed light on the impact of the banking system turmoil.
  • Following the U.S. bank failures are fears about bank concentration in commercial real estate (CRE) among regional and smaller banks. The concerns center on the refinancing cliff as refinancing rates will be higher given the higher interest rate environment coupled with tighter lending standards and continued elevated vacancy rates. Underwriters are scrutinizing CRE exposure in banks’ loan portfolios and investment portfolios of asset managers and want to understand the exposure and differentiation across CRE sectors.
  • Some insurers have intimated that they expect rate stabilization in the FI D&O and BPL market, at least for banks. It is premature to determine how the banking turbulence and CRE performance will continue to unfold, and therefore, too early to tell how the insurance markets will respond, but it is likely that those insurers not impacted by the failed banks will continue to drive competition.
  • It seems increasingly likely that the banking crisis will push the U.S. into a mild recession. The recent bank failures highlight the toll of the Fed’s aggressive interest rate hikes on both the banks and their customers. It has heightened scrutiny by investors and regulators of the magnitude of unrealized losses of held-to-maturity securities. If interest rates continue to rise to combat inflation and banks tighten lending conditions, this may become more of a systemic event and not just a banking event. D&O underwriters are concerned with macroeconomic uncertainties arising from inflation, interest rates, corporate insolvencies and global hostilities, such as the Russia/Ukraine war, as well as sector concentration in loan and investment portfolios.

FI D&O rates have trended downward but remain more stable than commercial D&O rates.

  • While there are certain situations of material rate decreases for FI D&O, the rates are, on average, more stable than commercial D&O rates with the upward and downward rate swings more muted for FIs.
  • We expect D&O rates to continue decreasing, particularly on excess and Side A, with reinvigorated insurer appetites, recognizing that, as the turmoil in the banking sector and impacts of the failed banks continue to unfold, this will likely have an influence on the rate temperature of at least some insurers. We will monitor developments in pricing, retentions and terms, as well as claim activity and trends across all FIs.
  • D&O capacity for digital asset risks continues to be challenged, and there has been a pause for some insurers because of the FTX fallout. That said, there is interest in the marketplace from both established and niche digital asset markets, but those insurers have a more cautious approach in their limit deployment. While there is an appetite from some insurers, premiums and retentions are typically elevated as this is still an emerging sector with significant price volatility and a lack of consistent regulatory clarity and guidance.
  • The M&A environment for FIs in 2023 remains difficult with the uncertain macroeconomic environment and impact of rising interest rates on financing. Increased regulatory scrutiny of bank M&A has resulted in significantly delayed closing timelines, and we can expect regulators to scrutinize capital and liquidity more closely. That said, more FIs are focused on core businesses and identified growth areas and are carving out those non-core businesses. Should we see more FI M&A activity, D&O tail coverage pricing has gotten more favorable from a year ago.

Professional liability (E&O) varies by subsector, with regulatory trends a key focus by underwriters across all subsectors.

  • Asset managers: Rates have stabilized with most programs experiencing flat to modest premium decreases. Several new insurers have entered the asset management D&O/E&O space, creating meaningful competition on renewal programs, though mostly on an excess basis. Asset management, particularly registered investment advisors and registered funds, continues to be the most desirable subset of the financial services sector; however, interest in private equity, BDCs, and risks with material cryptocurrency exposure remains limited. Coverage remains stable, though some insurers are reassessing the scope of cost of corrections coverage following a series of significant trade error losses. Market volatility arising from the recent failures of U.S. banks may give rise to more trade errors and investor (and perhaps regulatory) claims. While U.S. regional bank ETF returns have been pulled lower, money market funds have benefited from the deposit outflows from regional banks as that has fueled record inflows into money market funds. Underwriters are focused on understanding the effects of banking system stress on investment portfolios, investments directly or indirectly impacted by rising interest rates (e.g., treasury holdings, real estate), and communications and disclosures to investors around these areas.
  • Insurance companies: Rates have stabilized following several years of significant rate increases, and in certain circumstances, rate decreases are achievable through a marketing effort. There remain few viable primary insurers looking to write new business today. Competition for excess ICPL — particularly when blended with other coverages — improved dramatically in 2022. We expect this trend to continue, as several new insurers began quoting on an excess basis or returned to the market after taking a step back and reevaluating their strategy. Retention increases are less common because most primary insurers have remediated their portfolios and materially adjusted retentions over the past couple of years. There continues to be upward pressure on retentions for sales and marketing coverage.
  • Banks: Rates and retentions have stabilized with most programs experiencing flat to modest rate increases. In certain circumstances, rate decreases are achievable through a marketing effort when pricing and retentions are adequate for the risk exposures. Aggressive growth targets at insurers have resulted in increased competition, particularly on the excess, which has helped to minimize rate increases. However, in light of recent U.S. bank failures and turmoil in the banking system, insurers are more closely monitoring their bank portfolios, and this may result in a change in appetite or upward pressure on rates. Insurers are also monitoring those sectors that are concentrated with certain banks. Banks can expect an increased focus from BPL (and D&O) underwriters on deposit mix and outflows, funding sources, liquidity and capital management, commercial real estate exposure within loan portfolios, investment portfolios, tightening in lending, credit quality and response to volatility in the bank sector.


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).


U.S. Head of FINEX Financial Institutions

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