US financial institutions (FI) saw premium increases of 15% on average in Q2, according to Aon’s Quarterly D&O Pricing Index. UK FIs experienced similar increases. However, renewals have been mixed and will continue to depend on specific risk factors and financial performance.
The Q2 2009 Index, which tracks premium changes relative to the base year of 2001, delves into the trends seen year over year for this essential line of coverage. The analysis finds that pricing increased 4.07 percent in the second quarter as compared with the second quarter of 2008.
Current rates in the S&P Financials sector (banks, diversified financial, insurance and real estate) are up 14.77 percent. The economic turmoil means rates are increasing significantly, capacity is constricting and coverage terms are tightening.
Meanwhile, all other S&P sectors (service, manufacturing, technology, etc.) were flat, marking the first time in more than three years that rates did not decrease. Exceptions seen in the commercial realm stem from industries rife with bankruptcies. But in the UK, abundant capacity for most buyers means that those prepared to shop around can still find bargains in the market. This is more so in the excess than the primary market as we see new entrants fighting the established players for market share.
One notable difference in cross-Atlantic premiums is in the automotive sector. While the US has seen two very high profile bankruptcies in the second quarter, the UK D&O market has not experienced the same challenges. Pricing in the related sector in the US is up nearly 44% (consumer discretionary). In the UK it is flat with premium reductions available in certain instances.
Adam Codrington, executive director at Aon’s financial services group, said: “There has been a definite rise in UK claims activity but mostly confined to the primary layer of programmes. We anticipate that this will lead to frictional erosion of margin for primary players, while excess players continue to be relatively unencumbered by non FI related claims.
“As such, we are seeing attempts to increase premiums in many incidents but they are being held up by competition in the market.”
“The delicate balance between the forces holding D&O prices down and the need for rate increases could soon shift in the favor of underwriters,” said Michael D. Rice, II, national practice leader of Aon’s financial services group in the US. “Fortunately for Aon’s clients, pricing in the D&O marketplace continues to remain at soft levels.”
