Rate predictions: Financial institutions (FINEX)
|
Trend |
Range |
| D&O — Publicly traded financial institutions |
 |
Flat to +10% |
| D&O — Private financial institutions |
 |
+5% to +15% |
| Side-A /DIC |
|
Flat to +7.5% |
| D&O/E&O — Asset managers (excluding private equity/general partnership liability) |
|
Flat to +10% |
| Bankers professional liability (BPL) |
|
Large: +5% to +15%
Middle market: +5% to +20% |
| Insurance company professional liability (ICPL) |
|
Life: +5% to +20%
P&C: +5% to +30%
|
Key takeaway
Rate increases will continue to abate with further market stabilization, increased competition and a general sense from insurers that portfolios are in a more sustainable place.
The anticipated deceleration of rate increases for financial lines as a result of new market entrants, market expansions and corrective portfolio measures continues to play out, and the rate of deceleration may increase as we continue through 2022 with rates closer to flat and the potential for decreases on excess layers.
- Financial line coverages, except for fiduciary liability and cyber, continue to see a moderation of rate increases and stabilization of retention increases generally secured in the prior two years. (For more detail, refer to the sections of this report on fiduciary liability and cyber.)
- Insurers are typically comfortable with current capacity and attachment points, but some are now looking to increase capacity, likely with a ventilated approach, and attach on lower layers of a program tower, particularly as rates compress higher up a program tower.
- Following the significant portfolio corrective actions taken by insurers over the past two years and increasing competition in the marketplace, insurers are focused on new business and growing portfolios.
- New market entrants are most often providing excess capacity rather than primary capacity; this will continue to help fill capacity needs and drive competitive pressures.
- Even with the moderation in the market, financial institutions continue to explore the use of (or expanded use of) captives, alternative program structures, self-insurance and risk financing portfolio analytics to better manage program volatility in the future.
- Key emerging risk trends are becoming more top of mind for many financial institutions: ESG (with an emphasis on climate, inclusion and diversity), crypto/digital assets, return to work and vaccination protocols, economic recovery, rising inflation and the effects of the crisis in Ukraine.
Financial institution D&O continues to see rate increases, but they have trended downward.
- Q4 2021 financial institution public D&O renewals saw a median rate increase of 9.3%, compared to a 20.0% increase for Q4 2020, per our client rate trend data.
- Primary and excess D&O rates are more aligned, with some tapering of excess rate increases. There may still be pressure to bring lower excess layer increased limit factors (ILFs) closer to 70%, but this should be minimal and in pockets, as excess rate recalibration was largely achieved over the past two years.
- Side A DIC rates have trended more competitive, with rate increases in line with or less than the primary rate increase. However, this could change with an increase in substantial derivative litigation.
- 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 will continue to add E&O exclusions, if not currently in place.
- On the heels of a record year in 2021 for financial services M&A activity, deal making is poised to be strong for 2022. Underwriters are focused on acquisition and divestiture activities and how they change the risk profile of insureds. Extended reporting period (tail) pricing factors are coming down slightly from 2021.
Professional liability (E&O) varies by subsector, with regulatory trends a key focus by underwriters across all subsectors.
- 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 lower single-digit increases being common. Retentions and coverage remain stable, unless an insured has had 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 have revisited their strategy and are issuing new policy forms, and some new market entrants will cautiously write excess ICPL. Rates have largely stabilized, but increases continue to prevail. “Cost of insurance” claims remain a significant concern. Sales and marketing coverage for life insurers is difficult to obtain, with many markets affording only sublimits or higher split retentions — or excluding cover altogether.
- Banks: BPL continues to be challenged by high claim frequency and severity and, as such, primary capacity remains limited. However, there is renewed interest from some insurers that are targeting banks with $5 billion to $20 billion in assets. BPL rate increases have moderated, but some may still experience double-digit increases, although likely less than what was applied in 2021. Retentions are now largely in a sustainable place after two years of increases.
We continue to monitor several coverage trends.
- ESG: Greenwashing, evolving global regulatory regimes, nat cat portfolio concentration and disclosures are growing areas of underwriting focus. We recommend that companies highlight their ESG framework, strategy, governance and initiatives to demonstrate their progress in this area.
- Crypto: Underwriters are focused on understanding crypto/digital asset exposures for all types of financial institutions. A small number of insurers have applied specific crypto exclusions. While most financial institutions have cautiously approached crypto/digital assets due to a lack of regulatory framework and clarity, there is a growing demand from customers for solutions in this area. We recommend that companies review their exposure and strategy for near-term and future use of crypto/digital assets with their insurance advisors.
- Russia – Ukraine: This is very much an evolving area. As of this writing, underwriters are seeking to understand how companies are assessing direct and indirect exposures, monitoring the situation and what actions have been taken. As insurers assess their own portfolio exposures, with scrutiny on war/hostile act exclusions, we may see pressure for a pullback in coverage.
- Boundary cyber risk: Cyber/privacy exclusions continue to be applied to non-cyber lines (e.g., E&O, EPL) to clarify the intersection and overlap of cyber risks across different coverages (boundary cyber risk). D&O insurers are asking more cyber-related underwriting questions. As (re)insurers continue to assess their silent cyber exposures and, as 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.
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 entities, including Willis Towers Watson Northeast, Inc. (in the United States) and Willis Canada Inc. (in Canada).
Each applicable policy of insurance must be reviewed to determine the extent, if any, of coverage for losses relating to the Ukraine conflict. Coverage may vary depending on the jurisdiction and circumstances. For global client programs it is critical to consider all local operations and how policies may or may not include coverage relating to the Ukraine conflict. 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 and/or other professional advisors. Some of the information in this publication may be compiled by third-party sources we consider reliable; however, we do not guarantee and are not responsible for the accuracy of such information. We assume no duty in contract, tort or otherwise in connection with this publication and expressly disclaim, to the fullest extent permitted by law, any liability in connection with this publication. Willis Towers Watson offers insurance-related services through its appropriately licensed entities in each jurisdiction in which it operates. -The Ukraine conflict is a rapidly evolving situation and changes are occurring frequently. Willis Towers Watson does not undertake to update the information included herein after the date of publication. Accordingly, readers should be aware that certain content may have changed since the date of this publication. Please reach out to the author or your Willis Towers Watson contact for more information.
