U.S. D&O Losses Hit Lloyds Results

London Editor

London

U.S. directors and officers business has been very egalitarianin the losses it has wreaked on underwritersno market has been leftunscathed. Indeed, those underwriters that have limited theirexposures to non-U.S. business have had much more favorable lossratios.

The Lloyds experience demonstrates the situation aptly. Figuresreveal a profitable book for D&O business written for companieswith no U.S. exposure and quite the reverse for the U.S. book.

In 1997, all of the D&O business written by the Lloydsmarket generated nearly 150 million worth of premium, said ChrisHill, underwriter at Syndicate 33, which is managed by HiscoxSyndicates Ltd.

The loss ratio on the D&O business that has developed since1997 is close to 190 percent, he said, which is calculated on a netbasis (or after brokers commissions).

“If you look at the 1998 year of account, the amount of premiumthat came in from pure D&O was 166.9 million, and the lossratio on a net basis is just over 200 percent,” he said.

“Hiscox estimates that the loss ratio for pure Europeanbusiness, with no U.S. exposure, in 1998 is around 10-15 percentmaximum on a net basis,” he said. He attributed the better Europeanbusiness result to the fact that there is no active plaintiffs barwithin Europe and the claimant is liable for legal fees on bothsides if the claimant loses.

“This leads me to conclude that the U.S. market brought inexcess of a 250 percent loss ratio for the 1998 year of account,”he said.

The 1999 year of account generated almost 212 million of D&Opremium written on a net basis, he said, noting that the loss ratiodeveloped thus far for that year is 81.1 percent, he said. (Lloydsoperates three years in arrears so the last reported year ofaccount was 1998.)

He said the developing figures for 1999 indicate someimprovements on the horizon “because when you look at the lossdevelopment of 1998, the loss ratio was 104.5 percent after thesame time period. This, Mr. Hill said, indicates that “rates arecertainly starting to edge up a lot with underwriters looking attheir cost of capital and reinsurance costs, and going back andlooking at coverage terms and conditions,” he said.

Martin Beagley, executive director of the global financial andexecutive risk practice of Willis Ltd. in London, said there arequite a few Lloyds facilities for U.K. or European businesses thathave loss ratios of less than 20 percent.

He admitted these facilities have been fortunate because thereare a number of recent D&O losses in the United Kingdom,Germany and France. However, the more positive D&O experiencein Europe is requiring slightly less tightening of terms and lowerrate increases than is being seen by U.S. companies or companieswith U.S. exposures, he said.

Indeed, he noted that U.K. and European companies with no U.S.exposure may experience rate increases of five, 10 or 15 percent,compared with top-end rate increases of 300-400 percent forcompanies with U.S. D&O exposures.

All D&O underwriters, even those exposed to U.S. risks, mademoney for most of the past five or six years, he said. “Had it notbeen for the dot-com crash and broadening of cover, they would havecontinued making money,” he said.

Reproduced from National Underwriter Property &Casualty/Risk & Benefits Management Edition, December 3, 2001.Copyright 2001 by The National Underwriter Company in the serialpublication. All rights reserved.Copyright in this article as anindependent work may be held by the author.

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