Underwriters fighting an uphill battle

Prices for commercial insurance, notably for Directors & Officers liability coverage, move in a predictable cycle.

In today's market, D&O claims frequency and severity are both down and as a result, underwriting profits are up despite falling prices. These profits have enticed a rush of money into underwriting creating an imbalance of supply & demand.

With the subprime crisis resulting in $200b in write-downs and 178 lawsuits so far, it is only a matter of time for the inevitable impact on the D&O and E&O industry. A handful of claims notifications have been made already but the story is still playing out in the financial markets and not yet in the insurance industry.

Advisen monitors and reports on premium trends in North America, both on behalf of the Risk and Insurance Management Society as the administrator of the RIMS Benchmark Survey™, and in Advisen.com. Our data showed that, despite having had 9 months to digest subprime, renewal pricing for D&O and E&O for financial institutions is falling just as it is for other industry sectors.

To confirm the findings of the empirical data collected from risk managers and brokers, we conducted a survey of financial institution insurance buyers. The results of the survey are available here and contain details on financial sector price trends and an unexpected trend in the terms of coverage.

Later this week Advisen will publish a more comprehensive analysis of the potential impact of the subprime mortgage crisis on the insurance market, covering reported write-downs to-date, subprime-related lawsuits filed to-date, an analysis of potential losses to the insurance market, and estimated market share of the major writers of financial institution D&O and E&O. To obtain a copy, call Advisen on +44 (0)20 7929 6929 or london@advisen.com in the UK or +1.212.897.4800, or emailing support@advisen.com in the US.