Rate predictions
Rate predictions: Financial Institutions (FINEX)
| |
Trend |
Range |
| D&O — Publicly traded financial institutions |
 |
+5% to +15% |
| D&O — Private financial institutions |
|
+5% to +15% |
| Side-A/DIC |
|
+5% to +15% |
| D&O/E&O — Asset managers (excluding private equity/general partnership liability) |
|
+5% to +10% |
| Bankers professional liability (BPL) |
|
Large market: +10% to +20%
Middle market: +5% to +25% |
| Insurance company professional liability (ICPL) |
|
Life: +5% to +20%
P&C: +10% to +30% |
Key takeaway
Since the peak of the hard market for financial lines in Q3 2020, upward pressure on rates and retentions has eased and we expect further market stabilization and deceleration of increases through 2022.
New market entrants, capital inflow, market expansions and corrective portfolio measures in the financial lines space have yielded a deceleration of rate increases, which is expected to continue in 2022.
- Financial lines coverages, with the exception of fiduciary liability and cyber, have seen a moderation of rate and retention increases. (Refer to the sections of this report specific to these coverages.)
- Insurers continue to focus on aggregation across coverages, related entities and geography, but are now generally more comfortable with capacity and attachment points, thanks to steps taken over the past year and a half to reduce or ventilate capacity.
- Following the significant portfolio corrective actions taken by insurers in 2020 and increased marketplace competition, insurers have shifted their focus to include new business objectives, but with a measured approach.
- Substantial movement of talent in the underwriting community has triggered a portfolio review at some insurers. In some cases, appetites have become more conservative and in other cases more expansive.
- New market entrants are typically utilized for excess capacity, helping fill and replace capacity and increasing competitive pressures.
- Financial institutions are exploring the use of (or expanded use of) captives, alternative program structures, self-insurance and risk financing portfolio analytics to better manage program volatility.
- Key emerging risk trends facing many financial institutions and becoming more top-of-mind for insurers include ESG (with an emphasis on climate, inclusion and diversity), cryptocurrency, return to work and vaccination protocols.
The financial institution D&O marketplace continues to see rate increases, but they have trended downwards.
- For year-end 2021 renewals, indications point to low double-digit increases, on average, with slightly better results for increased retentions in a notable change from recent trends.
- There is more alignment in primary, excess and Side A rate increases since the extensive excess rate recalibration in 2020. However, where lower excess layer increased limit factors (ILFs) are below 70%, there is still pressure to move these ILFs to 70% or higher. Aggressively priced Side A DIC layers may also continue to see increased rate pressures.
- In some cases, excess insurers have staggered rate increases (lower rate increases on excess layers), helping to minimize overall program rate increases.
- Private D&O rate trends are slightly more favorable for buyers, but the focus on retentions continues. Private financial institutions were largely spared the pullback in entity coverage seen in the commercial space, but underwriters are adding E&O exclusions, if not currently in place.
- 2021 has been an active year for M&A activity among financial institutions after a pandemic pause, and the deal pipeline continues to be strong. Underwriters are focused on acquisition and divestiture activities and how that changes the risk profile of insureds. Extended reporting period (tail) pricing factors are receiving more attention.
The professional liability (E&O) marketplace varies by subsector.
- Asset managers: Asset managers generally continue to be viewed favorably and are a targeted growth area for most insurers. Across the financial institutions industry, rate increases have come down most for asset management D&O/E&O programs, with single-digit increases being common. Retentions remain stable, unless an insured has seen a substantial increase in exposures.
- Insurance companies: The market for ICPL continues to be challenged. There is limited primary capacity, though a couple of insurers are revisiting their appetite and strategy and issuing new policy forms. Some new market entrants will cautiously write excess ICPL. Insurers have added exclusionary language to cap pandemic business interruptions. For life insurers, the issue of “cost of insurance” remains a significant concern. Sales and marketing coverage for life insurers is difficult to obtain, with many markets affording only sub-limits, higher split retentions or excluding cover altogether.
- Banks: BPL continues to be challenged by high claim frequency and severity, and as such, primary capacity continues to be limited. That said, there is renewed interest from some insurers targeting banks with $5 billion to $20 billion in assets. BPL rate increases are still in the double digits but have moderated. Many programs experienced upward retention pressures last year and in H1 2021, and we expect there will be less focus on increasing retentions. Blended programs with BPL may face capacity challenges, as some insurers will not write BPL coverage.
We continue to monitor several coverage trends.
- Boundary cyber risk: Cyber and privacy exclusions continue to be applied to non-cyber lines (e.g., E&O, EPL) in an effort to eliminate ambiguity and clarify coverage. D&O insurers are asking more cyber-related underwriting questions. As insurers continue to assess their silent cyber exposures and the cyber threat landscape evolves, we recommend reviewing all cyber-related coverage to be sure it is appropriate and to create better alignment and integration between programs.
- Extended reporting periods (ERP): Some insurers are removing pre-determined ERP options where allowable by law. Strategies can be deployed to address this trend, and not all insurers are taking this approach.
- Shareholder derivative demand investigation (SDDI) costs: Some insurers are reducing or removing coverage for SDDI costs due to increased losses. Insureds may be able to maintain meaningful SDDI coverage by securing drop-down sub-limits higher up the tower, increasing excess drop-down sub-limits, applying a retention or moving the primary to an insurer who will provide SDDI costs coverage.
Disclaimer
Willis Towers Watson hopes you found the general information provided in this publication informative and helpful. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal advisors. In the event you would like more information regarding your insurance coverage, please do not hesitate to reach out to us. In North America, Willis Towers Watson offers insurance products through licensed subsidiaries of Willis North America Inc., including Willis Towers Watson Northeast Inc. (in the United States) and Willis Canada, Inc.
