Soft D&O market expected to persist into 2024
More than 90% of D&O underwriters believe pricing for mature public companies will go down or stay the same in the coming year.
Carriers are expected to continue competing on not only price but also coverage in the D&O space, which will result in soft market conditions continuing into 2024, according to market research from Woodruff Sawyer.
D&O underwriters support this projection, with 63% predicting rates will stay flat in 2024, while 30% believe rates will continue falling, according to the insurance brokerage and consulting firm.
This is a dramatic shift from where the D&O market stood a few years ago. Woodruff Sawyer’s data indicate that from 2019 through the first half of 2021, more than 91% of D&O renewals came with a rate increase.
The rate environment took a fast turn in the other direction starting in 2022’s first half, which saw 63% of renewals coming with rate decreases. This was followed by 87% of renewals coming with a rate drop in the second half of 2022, according to Woodruff Sawyer. The first half of 2023 saw a complete reversal of 2020’s rate environment, as 91% of renewals saw rates decrease.
The swing in rates, according to Woodruff Sawyer, can be a tribute to a few factors: Rate increases in 2019-2021 brought the market more capacity from new carriers, who had no long-tail claims to manage. This premium boom period was driven primarily by coverage needs of special acquisition companies (SPACs) as well as traditional initial public offerings, which saw robust activity during the period.
At the same time more capacity was coming into the market, the number of initial public offers began to dry up (relative to prior years). Woodruff Sawyer noted this drove fierce competition for the business generated by SPACs and de-SPACs.
The supply imbalance-driven drop in rates was dramatic. In 2022’s first quarter, D&O rates for recent IPO companies saw a modest 5% increase, but by Q2 they were down 24% and premiums continued tumbling through Q2 2023, which saw rates down 45%. Rates for mature public companies saw more modest declines in comparison, with rates declining 21% during the most recently closed quarter.
However, the D&O market is cyclical and public companies shouldn’t assume that a favorable rate environment will persist forever, noted Priya Huskins, senior vice president of management liability at Woodruff Sawyer.
“Companies may want to take advantage of the moment and right-size their insurance after under-buying during the hard market,” Huskins said in a release. “When doing so, however, remember that it can be very uncomfortable for boards if companies change coverage year-over-year based only on pricing.”
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