The U.S. directors and officers insurance market recorded $4.14 billion in direct premiums written in the third quarter, up from $2.97 billion a year earlier, according to an S&P Global Market Intelligence analysis.
The industry's quarterly direct premiums written surpassed $4 billion for the first time since at least the first quarter of 2018, as year-over-year premium growth continued for the 11th consecutive quarter. At the same time, D&O insurers posted a third-quarter direct incurred loss ratio of 71.6%, the highest quarterly loss ratio since the 88.4% loss ratio in the fourth quarter of 2019.
American International Group Inc. was a major contributor to the spike, as its third-quarter loss soared to 220%, from just 55% in the prior-year period. CFO Mark Lyons during a Nov. 5 earnings call said AIG's entire North American financial lines business was negatively impacted by primary public D&O, largely in national accounts, and the private not-for-profit D&O unit.
The Travelers Cos. Inc., Sompo Holdings Inc. and Markel Corp. also saw significant jumps in their third-quarter loss ratios with increases of 45, 32 and 20 points, respectively.
Axa SA held on to its spot as the largest D&O insurer in the U.S. with $708.4 million in direct premiums written during the quarter, representing a year-over-year premium increase of 62.6%. Chubb Ltd. and AIG remained in the second and third spots, respectively. Chubb ended the quarter with $348.6 million in direct premiums written, while AIG had $336.1 million.
Fairfax Financial Holdings Ltd., which posted an 88.4% year-over-year premium increase, moved up one spot in the rankings, pushing Tokio Marine Holdings Inc. down to fifth.
Among the top 20 D&O insurers in the U.S., Axis Capital Holdings Ltd. recorded the highest year-over-year premium growth at 569.9%. The insurer rose to the 16th spot from the 31st, recording $95.4 million in direct premiums written in the quarter.
Nationwide Mutual Insurance Co. was an outlier in terms of year-over-year premium change in the third quarter, plummeting to the 19th spot from the 10th spot with a premium decline of 25.9% year over year.
Large companies now look at D&O policies as "the most important" insurance they can get because it is leveraged against a wide range of risks, according to Allianz SE's global head of financial lines, Shanil Williams. Litigation risk continues to be a top concern for D&O, particularly around shareholder derivative actions increasingly brought in U.S. courts on behalf of foreign companies, according to a report from Allianz Global Corporate & Specialty SE.
Companies also face enhanced cyber and IT security exposures due to the pandemic-fueled acceleration in digitalization, as well as market volatility due to the increased threat of asset bubbles and rising inflation. The growing popularity of special purpose acquisition companies poses another emerging risk in the D&O insurance space, while the prospect of climate change litigation, or "greenwashing" allegations, could also potentially impact the industry down the line.