2022 North American D&O overview and what lies ahead for 2023?
2022: Year of the Reset
2022 saw a period of re-adjustment to premiums, retentions and coverage in the North American D&O space. After the years of 2019, 2020 and 2021 seeing an unprecedented amount of year-on-year rate and retention increases, coupled with a reduction in capacity and coverage being pulled back, it’s safe to say that what the London market experienced in 2022 was unexpected.
During 2021, there were a significant number of public listings, via traditional initial public offerings, Special Purpose Acquisition Companies (SPAC) and business combinations/reverse mergers. This was largely expected to carry through untill 2022, however the actual figures showed a dramatic drop off in activity. The recorded number of SPAC IPO’s in 2021 was 613, compared to 76 in 2022 (1). The equity markets had been significantly affected by a number of external factors including the Russian invasion of Ukraine, inflation, and interest rates- thus resulting in a lack of public offerings. During 2022 there were only 93 traditional US IPO’s, of which only 19 raised over $100m, versus 193 the year prior, resulting in the quietest IPO market in over a decade (2).
The factors listed above, contributed to a very competitive D&O landscape in 2022, with insurers chasing deals to hit their targets. Strong, established players were fighting to retain renewal business due to the lack of ‘new new’ business, along with new entrants looking to grow their books from the ground up. Renewal business witnessed rate decreases of as much as 50%, combined with significant coverage enhancements and retentions lowering by over half. Several insurers in the London market have stated that on average by the end of 2022, their premiums had lowered to the same rate per million that they were priced at in 2018.
London market: prepared for the long-haul - whichever way the market turns
The question that is on everyone’s minds is - what lies ahead for 2023? According to Skadden (3). 157 Securities Class Actions were filed in the first 9 months of 2022, versus 161 filed in the first 9 months of 2021. That said, a large number of the class actions that are being filed in 2022 are in the SPAC and cryptocurrency sectors.
SPACS can fail, either due to the SPAC vehicle failing to find a business combination or deciding to liquidate. Cryptocurrency space, following a large bankruptcy filed in December, has seen an increase in Securities Class Actions being filed. We expect rates in these two lines of business to increase (especially for extended reporting periods), along with a reduction in capacity for 2023.
Despite this, premiums remain stable for other sectors that have not been as affected by litigation and the expectation for Q2 2023, is for capital markets to pick back up again so the flow of IPO deals can once again commence in the London market.
What we can ensure for 2023, however, is that Miller will be seeking to obtain the most competitive options from a panel of insurers with first class rated capacity to provide our clients with the highest level of comfort and confidence with their D&O renewals. With an increase of new capacity, commercial underwriting strategies and flexible commission structures, London has never been more relevant.
