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SPEAKER 1: Welcome to WTW's Global Marketplace Insights series, where our experts bring you the latest risk and insurance perspectives.
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SPEAKER 2: With cyber exposures constantly evolving, how do you expect rates for FINEX (Financial, Executive and Professional Risk) products to change this year?
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JEREMY WALL: So rates for FINEX products, I mean, we have a broad spectrum of products, we're seeing a continued soft market, actually. There is plenty of capacity or overcapacity across most of the lines that we deal with, whether it's D&O (Directors and Officers), W&I (Warranty and Indemnity) FI (Financial Institutions), and particularly cyber, which has softened significantly in the first half of this year.
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There's volatility associated with that from our perspective in terms of the short and long tail nature of cyber losses. So that can change, but there's still plenty of capacity. There's plenty of appetite and the desired growth associated with that. So we still continue to see a softening of the marketplace.
1:13
It may level out towards the end of this year. But we don't see it at this point in time turning to a hard market anytime soon. Yeah, so the private equity space has changed a little bit, actually.
1:27
Obviously, coming out of the pandemic, there was a lot of activity in the M&A (Mergers and Acquisitions) space and there was a significant slowdown last year. Slowdown driven, really, in our opinion, around the geopolitical uncertainty, interest rates and inflation. It also gave the private equity space the opportunity to look at their portfolio companies and how they manage risk for their portfolio companies, be it D&O, or be it cyber and making sure that coverage is fit for purpose,
1:53
Also, really making sure that they buy in a more coordinated fashion when they're approaching insurers across their portfolio to protect both their own directors sitting on boards of their portfolio companies, as well as the portfolio companies themselves. So definitely, a far more joined up approach to that.
2:09
SPEAKER 2: Do you anticipate a surge in warranty and indemnity insurance due to the forecasted increase in M&A activity?
2:15
JEREMY WALL: So I'm not sure we're seeing a surge in M&A activity per se, but actually, we're seeing definitely an uptick in M&A activity in Q1, Q2, Q3 in 2024 versus 2023, which is a positive sign that we're seeing. And then in terms of where we're seeing that, jurisdictionally, obviously, there's cross border activity, but we're seeing good activity in Southern Europe and also more appetite for those jurisdictions that may previously fallen outside of appetite, such as Latin America, Mexico, Chile, et cetera. So we're definitely seeing appetite as the market comes back effectively.
2:55
SPEAKER 2: OK, thank you. And is warranty indemnity insurance adapting to cover new risks, do you think?
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JEREMY WALL: I think it's-- yeah, so is warranty indemnity cover adapting? Yes, I think that it is a lot broader than it used to be. They are very-- W&I market and warranty indemnity market is very good at looking at risks, unusual risks and finding a solution, particularly in the contingency market, et cetera. But there have been some big claims as well.
3:33
So there's a pause there probably to see how that pans out, I think. But traditional W&I absolutely is broad, pretty broad coverage available.
SPEAKER 2: OK, thank you very much. How closely tied are the D&O market rates to M&A activity, do you think?
3:41
JEREMY WALL: So, D&O rates being closely tied to M&A, I think there is definitely a link between the two. And I think maybe indirect as well as direct. I think the indirect link is the D&O premium pool.
3:54
If we look at it in 2023 and going into 2024, a huge proportion of that pool has actually disappeared due to the lack of Public Offering [insurance] so Public Offering of Securities Insurance (POSI) insurance, which means there's more capacity as well. So there's a chasing of premium, hence the drive down in rates in the D&O market.
4:12
And I think you also see the link between M&A activity and D&O claims actually. So there is definitely a link between the two. One is around premium and one is around claims, actually. And we're seeing perhaps less claims that we might have anticipated in that space because of less M&A activity. But that could change and will change.
