Lloyd’s: D&O derailed; it’s no longer just rate inadequacy
Underwriting in directors and officers (D&O) liability lines has gone from rate inadequacy to a full scale “moronic underwriting approach” that could leave select Lloyd’s syndicates under a supervisory microscope when capacity is next parcelled out, Patrick Tiernan, Lloyd’s chief of markets, warned syndicates during his Q3 market message.
D&O covers are suffering “a litany of irrational underwriting behaviours driving the relatively shambolic state of that market,” Tiernan said in his opening shots at unnamed syndicates.
“We are all running out of adjectives to describe the moronic underwriting approach being adopted by some elements of the market,” he said.
He told Intelligent Insurer that his colourful take on D&O was “actually tempered given what's going on”. “Hopefully, when we speak, we're speaking in the language that the managing agents are feeling themselves and syndicates are feeling themselves in certain classes.”
Lloyd’s has warned syndicates before on rate, which in some of the worst cases has seen risk adjusted rate falls of around 20%. But now the market can now expand its roster of worries to terms, conditions, exposures and much more.
“Having dug deeper over the summer, we think some of the trends in this sector are even worse than we had first thought,” Tiernan said of the state of play.
Line sizes have started to increase and coverages are widening, all with palpable effects “increasing both frequency and severity of loss potential.” Increased limit on lower layers is further squeezing rate on excess layers, he noted.
And the problems are proving contagious. “While much of the focus has been in the US, we are now seeing the same trends spreading across Australia and Europe,” Tiernan said.
Syndicates have only capacity to lose, Tiernan warns. “Pivoting to deal with market conditions may be needed and, as ever, we will react swiftly to mid-year changes and reallocations of capacity,” Tiernan warned. Coverholders and MGAs may need “active oversight.”
He warned: “Messing around with new business or restructured programmes to compensate for falling risk adjusted rate change (RARC) will not work for us, period.
“Missing rate is the same as missing plan with all of the consequences that come with that under principle based oversight,” Tiernan said.
For all the concern, he did add that “the best managing agents, most of the market in fact, are self regulating relatively quickly” as the speed of allocations and responses to mid year changes has increased.
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