How big is the Global D&O Market?

For a number of reasons there isn't a precise number for the total value of premiums on Directors & Officers insurance. For one, every company reports using a different nomenclature or taxonomy for their coverages.

Advisen estimates total global D&O premiums at around $10.5B.

Of this the total U.S. D&O premium is $6.25B of which $4.25B is public company D&O premium, and $2B private company D&O premium.

Our methodology for this figure is based on
(a) Advisen's benchmark databases (the largest online database) where the D&O premium is adjusted by the relative market share of our database participants
(b) estimates of D&O premium as a percentage of total reported Other Liability – Claims Made premium, and
(c) input from a number of large D&O writers as concerns their D&O premium volume and their estimates of their total market share

The figure is important as a reference for what happens when subprime claims hit the market. Advisen's February 2008 estimate of $3.6b in insurable D&O loss will be revised upwards in a soon-to-be-released report (including Errors & Omissions loss estimates), but the single-year impact will not approach total premiums.

The impact will hit the financial institution carriers hard and the resulting ripple effect will be very significant in the D&O space, but is not enough to put the whole market underwater. Let me know if you want to be on the list when the report is announced.

D&O Premium Correction, When not If

Further to my recent posts about the coming change in D&O premium rates (see here), another wholesale broker in London and Advisen client gave some specifics about REIT D&O policies being non-renewed (again, non-renewals are rare) and also suggested an interesting angle about coverage terms.

With D&O underwriters only now issuing new forms in response to the subprime crisis, by the time premiums correct these forms will still be in use meaning that premiums will go up and coverage terms stay broad.

When will premiums correct? His forecast is that general or commercial D&O rates will shift to a hard market in Q2 or Q3 of 2009.

Subprime cases by type of filing

With 282 subprime lawsuits and other actions to follow, the chart above shows the breakdown by type of case including some of the most noteworthy:

82 Subprime Securities Class Action cases

23 Subprime Derivative Shareholder cases

19 Subprime ERISA Class Action cases

15 Subprime Securities Fraud cases

So if Henry Paulson feels the worst is over in terms of the creation of subprime and other credit exposure (story here), the fun is just kicking off for the insurance industry.

282 And Counting

Advisen is now tracking 282 subprime lawsuits and other actions related to the overall credit crisis and yesteray's v7.0 of Advisen enables on-demand charting which I hope readers will find helpful. The above is a distribution by industry sector.

The Price of Apples

Amazing how many good D&O stories I missed on vacation last week from the Siemens claim to Aspen hiring away quality D&O underwriters from Lloyd's Managing Agent Novae, to D&O legend James Weatherstone taking the helm for Arch Europe.

Catching up with a Lloyd's broker yesterday who brings in US risk to London, D&O price volatility is up. In the Financial Institution market for D&O and E&O, the underwriting markets are shrinking their lines, and in one case flat-out non-renewing a policy. In general corporate D&O the impact is less profound but the tide will turn.

I'm also happy to report that the AIRMIC Benchmark Survey is well underway with the majority of respondents coming from Financial Institutions who want to get a good sense of where the D&O market is.

Don't forget us little people

I want to congratulate our friends at Exari on building a business from scratch and finding the right investment partner to get them to the next level.

Exari is document assembly software and while it was initially designed by lawyers for use by other lawyers who build the same legal documents repeatedly, the software is well-suited to the commercial lines insurance industry. Guy Carpenter have found a great way of using it and Marsh is working it into their systems now.

I share offices with Geoff Maskell and Martin Kett who opened up Exari Europe and launched it into banking and insurance companies and if you read the press release about the private equity firm's investment (here), you'll see how they are now big shot VPs and Board Members. I just hope that when they return from the RIMS Conference, that they remember us little people.

Congrats also to Exari founder Jamie Wodetzki, whose Breakfast Blog is among my favorite reads.

Benchmarking comes to the UK

Yesterday Advisen and AIRMIC announced the launch of a Benchmark Survey similar to the one Advisen has produced for RIMS for 6 years.

Picking up on my theme of how empirical data is superior to anecdotal data (see post here) AIRMIC Benchmark Survey is the only one of its kind in the UK where data is collected directly from risk managers, thereby providing the most accurate tracking of buying trends for all major coverage lines across a wide array of commercial insurance buyers.

For more information on participating or getting results, please e-mail airmic@advisen.com.

The survey results will provide AIRMIC members and other subscribers with benchmarking charts using relevant peer group comparisons. The data will make risk managers and other industry professionals more informed in considering the structure and expected cost of their insurance programmes. The service will answer questions such as “How much coverage do my peers buy?” or “Am I paying too much for my insurance?”

Risk managers who are not currently AIRMIC members are welcome to participate and/or to use the results of the survey in making more informed decisions about their insurance programs.

AIRMIC chief executive John Hurrell said,

“We have long admired the RIMS Benchmark Survey and are delighted to work
with Advisen on producing something similar.”