Recession and US class actions key concerns for D&O market

A potential recession and US class action securities litigation are key risk trends for directors and officers in 2023, according to a new survey by Allianz Global Corporate & Specialty (AGCS).

 “The recent decline in the number of filed securities and class actions in the US, coupled with an influx of new entrants, has created a more favourable market for corporate buyers of D&O insurance after double-digit percentage premium increases across key markets in 2021,” said Vanessa Maxwell, global head of financial lines at AGCS. 

“However, there is still a lot of risk facing insurers as macroeconomic issues and a potential slowdown loom – conditions which typically lead to an uptick in D&O claims. Inflation is likely to influence future claims through larger settlements.”

She said that cyber risk remains at an elevated level and is now seen as a core duty of D&O, with increasing scrutiny on how they respond. Meanwhile, ESG-related liabilities – whether it is inadequate action on climate change or diversity and inclusion issues – can potentially become significant exposures for D&O insurance as well, she added.

Falling growth rates, climbing inflation, the energy crisis, volatility in the stock market and ongoing supply chain issues are also being watched closely by D&O underwriters, as they could cause liquidity and profitability squeezes in many industries and spur rising insolvencies, according to the report.

“More than ever, D&O underwriters are focused on the financial strength of a company, particularly around liquidity,” said Katie Fioretti, global head of management liability commercial at AGCS. 

“With global economic uncertainties progressing, carriers are closely monitoring if the trend of increased Chapter 11 filings (in the US), which impact both public and private companies, will continue in 2023.”

Half of the countries studied by Allianz Research posted double-digit increases in business insolvencies in the first half of 2022. The SME sectors in the UK, France, Spain, the Netherlands, Belgium and Switzerland accounted for two-thirds of that spike, AGCS said. In 2023, insolvencies are expected to rise by 19% globally.