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BY : S I M O N G I B B – M AT R I X G LO B A L

This D&O update is unique in that it is the first time it has been formulated during a renewal season where the insurance buyer is negotiating based on terms and conditions that were bound during the Covid pandemic, and whilst we cannot completely ignore the continued uncertainty in the D&O market and the wider world, the insurance market looks and feels ready to move on from COVID-19.

As we enter the second half of 2021, we want to focus on how the insurance buyer controls and presents their risk to the market; because their Insurance Broker will need to have some tough conversations with insurers about removing the uncertainty reflected in pricing in some Management Liability programmes.

Experience this year suggests we are at the top of the pricing bell curve, with new excess market capacity applying some much-needed relief to overall pricing. Whilst primary policies remain difficult to replace or move, some primary insurers still need to take corrective measures.

For the past four years, the global hub that is the London insurance market has been an extremely challenging place to do business – the D&O and Management Liability market, in particular. Insurers need to be ready to compete for the existing business, on accounts where the rate has been corrected through an unprecedented year; any Chief Underwriting Officer implemented edicts around “not renewing flat” or “no decreases”, will almost certainly see insurers lose quality business.

Insurers have to be realistic about the clear and present challenges. The UK Chancellor remains adamant about redressing the balance of the public purse, and a lifting of lockdown does not necessarily mean an instant return to economic recovery. As furlough schemes lift, the fallout will start to be felt, and as we have learned from the last soft market, not just in the UK, but in many developed nations, the tail for D&O claims is a long one.

A quiet accident year (in terms of notifications) coupled with historic rate increases for insurers does not necessarily equate to a profitable return, and the long tail nature of D&O claims means payments for historic investigations (as far back as 2013) are still being made. Coupled with impending changes to audit reforms and the turbulence caused by UK IPOs and SPACs/De-SPACs – the outlook remains uncertain for the UK economy and its Company Directors.

United Kingdom

As we enter the second half of 2021, some of the pandemic induced turbulence seen throughout 2020 is starting to subside. The UK has now started to transition out of lockdown, and the wider optimism in the economy is starting to be felt in the D&O marketplace, with a softening of the pricing curve being observed.

Disregarding COVID-19 for a moment, there remains much uncertainty for UK companies and their Directors. Brexit remains a key driver of turmoil, with “Sausage Wars” breaking out and further upset to free trade only adding to woes felt at the Irish border.

There is also increased financial scrutiny on the horizon, with audit reform proving to be a key risk consideration for most UK board members.

There has also been an unprecedented level of attention paid to the UK listing environment. Whilst there has been a healthy level of IPO activity since the turn of the year, some have been more successful than others have. Any attempts by the Chancellor and Lord Hill to relax the listing rules and make the UK and its exchanges the country of choice for technology and unicorn flotations have been tempered by the perceived failure of some high profile IPO’s. The jury is still out.

Whilst the industries most impacted by COVID-19 remain challenging, retail and hospitality is bouncing back and some improvements to D&O terms and conditions are being seen. Aviation, meanwhile, will only likely see material positive movements once free travel and tourism returns to previous levels.

Looking ahead, the next quarter will see the anniversary of XL exiting the market, bringing some much-needed calm to renewal seasons. Replacement primary policies will be in place and the aforementioned excess capacity can really add value.


Europe has seen increased regulatory activity and, therefore, D&O claims. Traditionally, we have seen large limits from European insurers, but maximum line sizes are being reduced and clients are now needing to build their programmes in more layers. This, also, has undoubtedly changed the buying process.

Programmes historically built with one insurer taking the claims lead, now have group litigation handling becoming much more common. This will make settlements and claims handling more difficult and onerous.

The European D&O market began to harden after the London market. This remains the case but Europe does appear to be catching up as the historic claims start to bite across their portfolios.

With more European claims and insurers becoming more joined-up internally; this has meant that underwriting appetites and terms across insurers’ various offices are now much more consistent. Having said that, our view is that accessing the continental European market is a valuable marketing exercise and provides diversification for insurers on programmes.


The US D&O hard market is improving. US D&O prices continue to go up, though not as much as seen in 2020. Price increases vary based primarily on industry sector, size and growth, financial health and outlook, and claims history. As such, US underwriters pricing accordingly with four tiers of client companies in general. Tier 4 is very disadvantaged and is mainly driven by industries most affected by COVID-19. The other three Tiers and their typical price increases are as follows, noting that all three tiers are seeing on average, about a 25% reduction in the size of increases compared to 2020. We expect these reductions in the amount of premium increase to accelerate.

Tier 1 – Primarily Financial Institutions with healthy balance sheets, good earnings and no significant claims activity; pricing typically up 18% in 2020, now up by 13.5% and expected to continue lower.

Tier 2 – The best of the commercial accounts – some manufacturing, some services, but overall top performers may come from almost any class, including retail.

Typical increases have moved from 36% last year to 27% this year, with a current range of 15% to 40%.

Tier 3 – Ranges from typical to challenged accounts; you would expect to see most large technology accounts, established biotech and pharmaceuticals and recently many of the former Tier 4 companies that have recovered and rebuilt their balance sheet and income stream. Increases have recently been in the 35% to 50% range, but are improving each month.

Overall, it is not just supply and demand economics with new and revived capacity, nor stock market turnaround and success compared to a year ago, that are propelling relief from a hard market. Other factors allow for some optimism, such as the drop in the core claims (federal securities class actions) though likely COVID-19 related; the substantial drop in M&A claims; higher case dismissals (especially for Merger-Objection cases) and overall motions to dismiss won circa 50% of the time, newly formed companies increasing the number of publicly-traded insureds for the first time in a long time, and claim severities down.


The D&O market in Canada began hardening much later than the US market, and as such, we anticipate the market to remain hard throughout 2021 before seeing some moderation in 2022. Public and private organisations that saw rate increases of 25% or higher in 2020 should expect another round of increases in 2021. In addition, new wordings are being launched by the major carriers, and many of them have stripped out coverages that were previously “thrown in”. We continue to see reduced capacity, tightened terms, higher retentions, and the removal of extensions like defence outside the limit and additional Side A, among others.

What we have seen:

• Defence cost inflation: Over the past 10 years, average hourly rates for law firms specializing in D&O defence work have seen average annual inflation of roughly 7%. Defence costs on a securities class action may be in the range of USD6m – USD10m, not counting the settlement itself.
• 12 years of soft market: From 2006–2018, coverage in Canada expanded drastically, while competition was fierce, driving prices to USD1k/1m or even lower.
• A shrinking market for premium: Publicly traded companies in Canada drive most of the market premium in Canada. As the number of public companies in Canada shrank, so did the amount of premium available to pay claims.
• Loss frequency: Over the past few years, claims in the private D&O world have risen significantly.

From private shareholder claims, to insolvency, and employment practices issues, private D&O became a money loser for carriers. In the publicly traded world, sectors like cannabis, fintech, and life sciences drove both frequency and severity issues for insurers.


D&O insurers of Australian domiciled companies continue tightening capacity and risk selection. Market conditions saw premium increases and restricted underwriting accelerate in 2020 amid uncertain financial markets and economic conditions in anticipation of the impact of COVID-19 in 2020; this prompted the need to review buying patterns and prioritise leverage of existing relationships to secure renewal terms with limited alternative options in a distressed global insurance market.

At mid-2021 there is more cause for optimism with signs that insurers are willing to trade on new opportunities and, in many cases, on more adventurous program structures. Premium strengthening year on year has given insurers more confidence. While we have not yet seen the predicted wave of insolvencies even after the ‘fiscal cliff’ of government stimulus and JobKeeper Payments ended in Q1-21, there is caution about the extent of harm for the Australian economy if the largest cities continue to experience the uncertainty of extended lockdowns. Government action seeking legislative and judicial reform to corporate regulation is signalling more balance for a director community craving business efficacy to capitalise on trading opportunities in changing economic conditions.

Sector sentiment is a key challenge with insurers tending to apply a broad-brush industry response, regardless of the risk metrics and variable characteristics of each distinct entity. In these conditions, directors can be effectively differentiated to get better than sector outcomes though this takes real skill and finesse.

Matrix Capabilities and Experience

Matrix are a specialist independent insurance and financial consultancy. For over 20 years we have been delivering successful projects for our Clients across a broad spectrum of industry, commercial and financial sectors on both a national and global basis.

Matrix focus on insurance 24/7 which has given us an in-depth perspective of the capabilities and resources of the broker and Insurer community. Our extensive project work also provides us with an ongoing insight to current and future market developments together with the implications for our Clients.

Other team members are experts in a variety of financial disciplines which has enabled Matrix to expand our scope of services to include innovative financial and insurance structuring solutions for businesses, financial institutions and the global M&A community.

In this market environment the challenge facing the insurance buyer is how best to meet the requirements for reviewing and validating the corporate insurance arrangements in the most efficient manner possible in order to satisfy the operational and corporate governance needs of the organisation.

Our fully independent insurance programme audit and review can provide the most effective solution by establishing the optimum insurance programme strategy and giving the necessary peace of mind both internally within the business and for external stakeholders.

Our specialists work in parallel with the normal annual insurance renewal process to minimize the impact of a hardening market and maximise our clients’ market opportunities.

Matrix are fully authorised and regulated by the Financial Conduct Authority.