| Trend | Range | |
|---|---|---|
| D&O — Primary publicly traded |  |
-5% to +5% |
| D&O — Excess publicly traded |  |
-5% to -10% |
| D&O — Private |  |
-10% to flat |
| Asset managers D&O/E&O (excluding private equity) | |
-10% to flat |
| Bankers professional liability (BPL) |  |
Flat to +10% |
| Insurance company professional liability (ICPL) | |
-5% to flat |
Professional liability (E&O) market dynamics vary by each subclass of FI business.
The insurance marketplace continues to be favorable for most asset managers. Premiums have generally renewed flat to -10% through Q1 2024, while the abundance of capacity has created opportunities to broaden coverage under most programs. Registered investment advisors, private fund managers and mutual funds continue to be the most desirable class of business for insurance carriers, though firms with significant exposure to cryptocurrency and commercial real estate will receive added scrutiny during the renewal process. These favorable market conditions are expected to continue through at least the end of Q2 2024. The SEC’s aggressive agenda, which targets such issues as ESG, climate and AI, continues to focus on the asset management industry, further heightening the risk of regulatory claims under these management and professional liability programs. In addition to regulatory matters, breach of investment mandate and cost of corrections losses continue to be the primary drivers behind claim activity for asset managers.
The market for ICPL has continued to improve, with rates generally declining due to the competitive environment. Retentions and capacity are stable despite ongoing challenges, such as climate change, an evolving regulatory landscape, social inflation, cost of insurance litigation and interest rate volatility. Artificial intelligence has been identified by ICPL underwriters as a significant emerging risk, requiring buyers to be prepared to discuss both how AI is being used and the controls in place to mitigate resultant exposures. We recommend that ICPL buyers capitalize on the current favorable marketplace to challenge existing premiums, retentions and policy wording.
BPL rates and retentions generally remained stable throughout 2023. However, there are signs of potential upward pressure on rates and retentions as we move through 2024, particularly for pockets of regional banks. We saw some carriers pull back on D&O limits in 2023, but there were no real challenges replacing that capacity given continued competition in the marketplace, and BPL was not really a concern. The banking system overall remains stable and sound, and the 2023 regional bank failures were contained.
The turmoil in the regional bank space one year later is, again, not industry-wide and seemingly idiosyncratic to those banks with high concentrations of office real estate loans and less diversified portfolios, as well as banks who are not able to facilitate modifications and extensions with borrowers.
Underwriters are highly focused on liquidity levels, loan portfolio mix, commercial real estate (CRE) loan exposure and credit quality. Specific to CRE, underwriters want to understand what percentage of the portfolio is in office CRE, performance, impairments, 12 to 24 month maturities, and a view on extensions and modifications. Cybersecurity remains a top risk for banks as the level of sophistication behind data breaches continues to rise, new technology is introduced and digitalization expands. The rapid adoption of generative AI, continued transition to cloud computing, expanded digital banking footprints and increased partnerships with third parties are leading to increased cyber and fraud risks. Regulatory scrutiny and complexity persist with a barrage of new regulations, including proposed increased capital requirements and scrutiny on CRE loans. Banks are focused on compliance with the SEC’s Climate Disclosure rule adopted in March 2024, while also working toward understanding the potential impacts of climate risks on both corporate and portfolio assets. Depending on how the office CRE market issues play out, we could see carriers step back from writing BPL, seek higher rates and retentions and/or manage capacity downward.
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).
