From a macro perspective writers of management liability insurance have been looking for rate increases for the past 2 or more years after a prolonged soft market that lasted 8 to 10 years and was characterized by irrationally low pricing on new business due to competition and flat pricing on renewals.
The need for rate increases can be correlated to the declining interest rate market in which conservative investment portfolios for insurers are yielding less, as well as increased claim payouts. The latter includes both new claims resulting from the increase in regulatory actions over the last 2 years, as well as the realization of long tailed claims that arose after the credit crisis.
With regard to claims being realized now long after the credit crisis, E&O and D&O liability is not like property insurance in that when damage occurs to a structure, the loss is paid in a current manner. Management/professional liability claims are truly long-tailed in nature hinging on accumulated defense costs, discovery time, and any arbitration, settlement or trial times and subsequent settlements, damages, etc…
The net result of declining bond yields to insurer portfolios, lack of underwriting profit from a prolonged soft market and increased claim payouts is that E&O and D&O rates are rising across the board with all insurers. Carriers are pricing and underwriting more conservatively, picking where they want to play and seeking rate increases to make an underwriting profit.
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