By Keira Wingate

Aug 15 - (The Insurer) - After years of softening rates, public D&O is showing signs of stabilization, according to a range of carriers during second-quarter earnings calls whose leaders described a market that may have found "some sense of the bottom" or a "potential floor".

Executives said prices appear to have stabilized, that insurers are adjusting their available coverage after some companies left the market and that they're being selective about what they insure to avoid recurring problems that could cost them money.

At WR Berkley, CEO Rob Berkley said the public D&O segment is "beginning to find some sense of the bottom", even as private and non-profit D&O remains "particularly competitive". He called D&O "a very broad space" with mixed conditions and said an uptick in IPO or SPAC activity would be "well-received" for premium growth.

"All we need to do is get the SPAC market going again and then we can have a party," Berkley said.

Bowhead Specialty's professional liability division premiums grew 23% year on year to $55 million in Q2, with CEO Stephen Sills noting that more than half of that growth came from commercial public D&O.

"In last quarter's call, we mentioned that we had started to see shoots of market stabilization," Sills said. "This quarter, the positive developments continued. We capitalized on some new opportunities and retained a large proportion of our renewals at or near expiring rates."

He added: "With Markel exiting the segment, we're also seeing more turnover on programs, creating potential opportunities."

MARKEL RUNOFF

Markel's retreat followed steep losses in its U.S. and European risk-managed D&O products, which were placed into runoff earlier this year. The company strengthened reserves for its run-off U.S. and European risk-managed D&O book by $127 million in the quarter, adding six points to its combined ratio.

Simon Wilson, CEO of Markel Insurance, said the policies Markel wrote for large U.S. companies in 2020 and 2022 kicked in at lower claim amounts than they should have, so they ended up paying out more often when lawsuits got expensive.

"What we thought was excess became almost like a working layer," due to inflation and the legal environment in those years, he said.

Markel CFO Brian Costanzo noted claims severity and frequency over the past six to nine months had exceeded actuarial modeling, prompting management to "take a strong, aggressive action against that and put meaningful reserves up against what might happen in the future with the claims going forward," Costanzo said.

Markel CEO Thomas Gayner called the years spent pursuing growth in the risk-managed D&O segment "an expensive lesson" and said the group has learned from it.

RATE TRENDS

Other carriers echoed the view that pricing may have reached its bottom.

Axis CEO Vincent Tizzio said public D&O pricing was "virtually flat" in Q2, indicating that "the potential floor has been reached".

RLI COO Jennifer Klobnak reported rates were down just 2% in its D&O book for the quarter, "so it's coming back towards flat".

Arch Capital CEO Nicolas Papadopoulo said rate decreases in excess D&O "are leveling off".

Still, companies are not rushing back into growth for the sake of growth.

Axis CFO Peter Vogt noted that public D&O has become a "very tiny portion" of the carrier's insurance portfolio after past pricing pressure. And Arch is maintaining a "cautious stance and prioritizing margin over volume" in both D&O and cyber lines, according to Papadopoulo.

Sill said Bowhead remains disciplined despite small improvements, pointing out that challenging market conditions, particularly in financial institutions and large cyber liability accounts, remain.

Arch Capital's Papadopoulo said the company remains cautious in professional lines, including D&O and is prioritizing margin over volume. However, he said the rate decreases in excess D&O could support additional growth in the future.

MARKET INFLUENCES

Executives also discussed macroeconomics and market drivers that could sway D&O demand and pricing.

WR Berkley's CEO cited the potential for a rebound in M&A and IPO activity, while Sills noted Markel's exit has opened room for incumbents.

Inflation and litigation trends remain key variables and Markel's experience shows how larger settlements can quickly turn higher-level D&O policies, which are usually less likely to pay claims, into layers that are more frequently hit, leading to unexpected losses.

Overall, commentary during Q2 suggested the public D&O market could be settling after a long slump. Prices may be leveling off, but insurers are still being picky about the business they take on to avoid the kinds of losses they experienced before.

For some, like Bowhead, conditions have helped with measured growth. For others, like Markel, the focus is on managing runoff and tightening underwriting.