D&O underwriters have benefited from relatively stable claims trends have in recent years, particularly regarding claims relating to securities class action filings. Underwriting performance slightly deteriorated in 2015 with a reported statutory direct loss ratio of 51% for the industry at Sept. 30, compared with 49% in full year 2014. Considerable further weakening in underwriting performance would need to be experienced for a shift toward positive D&O premium rate movement, Fitch said.

Recent merger activity in the property/casualty industry will have a meaningful effect on D&O market composition, but is unlikely to influence near-term pricing momentum. New York City-based multinational insurance giant American International Group's perennial market leader position will narrow as Zurich-based Ace Ltd.’s $28.3 billion acquisition of Warren, N.J.-based Chubb closes.

Still competitive D&O market

The recently completed $7.5 billion acquisition of Houston-based HCC Insurance Holdings by Tokyo-based Tokio Marine and Dublin-based XL Group’s $4.2 billion acquisition of Bermuda-based Catlin are also promoting a more concentrated, but still competitive, D&O marketplace with ample underwriting capacity, Fitch said.

Based on nine months 2015 direct premiums, 50% of the market is written within four companies, with pro forma D&O market share split approximately:

• 17% — AIG.
• 14% — Ace/Chubb.
• 10% — XL Catlin.
• 9% — Tokio Marine U.S.

Newly merged entities' success in integrating and retaining business within a larger portfolio will influence market competition going forward. Smaller underwriters may become more active in seeking growth by attracting displaced accounts or underwriters from recent transactions, Fitch said.