UK Directors' & Officers' Insurance 2008

• Estimates of the size of the directors' and officers' market, and growth rates between 2003 and 2007.
• A discussion of the competitive situation in the market, and estimated market shares for the largest competitors.
• A discussion of claims drivers and challenges for the UK market going forward

• Gain insight into the key factors driving market growth
• Understand the current competitive environment of the UK directors' and officers' insurance market
• Develop your business strategy using Datamonitor's unique sector forecast

Overview

Catalyst

Summary

Executive Summary

The market contracted marginally in 2007 due to significant premium rate cuts

The UK market contracted slightly in 2007 to £445 million

Premium rates continued to fall in 2007, although downward momentum lessened toward the end of the year

Product penetration rates increased among SMEs, as awareness of liabilities has grown

Brokers continued to dominate the distribution of commercial insurance

Broker-led operations remain the principle route to market

Commercial liability products are the least at risk to the direct channel and likely to remain brokered

Despite significant expansion the market is still dominated by AIG, Ace and Chubb

AIG continued as the market leader in the UK market, as market share remains over a quarter of the market

The proportion of the market written by Lloyd's insurers increased slightly in 2006

The UK directors' and officers' insurance market is forecast to increase to £672m by 2012

The market will grow continuously after 2008, driven by higher premium rates and more new business

Table of Contents

Table of figures

Table of tables

Market Context

Introduction

The market contracted marginally in 2007 due to significant premium rate cuts

The UK market contracted slightly in 2007 to £445 million

Premium rates continued to fall in 2007, although downward momentum lessened toward the end of the year

Product penetration rates increased among SMEs, as awareness of liabilities has grown

The market was still profitable in 2007 but margins were reduced

The market as a whole was profitable in 2007 due to a benign claims experience

The longer tail nature of the market makes determining its profitability difficult

The claims experience is expected to worsen in 2008, although 2007 was mild

UK claims were reported to be light in 2007, although suggestions are that this is temporary

The sub-prime loan and credit crunch could lead to large claims for even UK insurers in 2008 and 2009

The London markets exposure may be limited to £250m

Royal & SunAlliance underwrote Northern Rock's D&O policy

The new Companies Act will increase claims costs by allowing easier law suits against directors

The new corporate manslaughter offense may increase claims costs

European Union transparency directives have required more frequent and detailed reporting that opens directors up to more liability

A greater willingness by UK investors to litigate will increase the claims bill for UK insurers

D&O insurers have extended or made more explicit their coverage of a number of risks

The soft market lowered premium rates but also extended cover and insurers' liability

High profile extradition proceedings have caused a number of insurers to highlight this cover

Initial public offering cover has become more of an issue for smaller firms

PR cover is becoming increasingly important in D&O policies

Distribution Dynamics

Introduction

Brokers continued to dominate the distribution of commercial insurance

National brokers have lost distribution market share to the direct channel, chain brokers and telebrokers

The direct channel increased its share of commercial insurance GWP by 1% in 2006

Affinity groups remain a small channel for the distribution of commercial insurance

Banks and building societies continue to play a small role in the distribution of commercial insurance

Directors' and officers' insurance is primarily distributed through the broker channel

Broker-led operations remain the principle route to market

Commercial liability products are the least at risk to the direct channel and likely to remain brokered

Direct offerings are increasing in other liability lines however, and brokers cannot afford to be complacent

Large corporates continued to be a staple for D&O insurers but SMEs grew in importance

D&O is no longer the preserve of just large corporate risks as more SMEs become aware of their liability

SMEs may be increasing their uptake of D&O but product penetration remains low

SMEs were least likely to consider purchasing directors' and officers' cover without face-to-face contact

Electronic trading platforms are assisting brokers and insurers, even in the complex world of D&O

Most SMEs buy insurance via brokers, but direct insurers also distribute a significant part of the market

Competitive Dynamics

Introduction

Despite significant expansion the market is still dominated by AIG, Ace and Chubb

AIG continued as the market leader in the UK market, as market share remains over a quarter of the market

Ace updated its D&O policies in light of the new companies legislation

Chubb updated its product range in 2007

Insurers with smaller exposures to the UK market were also active in 2007

Markel updated its policies, although it suffered a high profile claim in 2007

Catlin continued to grow, though from a small base

Liberty acquired an underwriting agency and released a new D&O product

CNA launched a new policy targeting both SME and large corporate risks

Zurich expanded its presence in the UK directors' and officers' insurance market

Royal & SunAlliance suffered large claims due to the sub-prime crisis

The proportion of the market written by Lloyd's insurers increased slightly in 2006

Future Decoded

Introduction

The UK directors' and officers' insurance market is forecast to increase to £672m by 2012

An increase in claims frequency and more firms taking up the cover will force insurers to increase premium rates

The market will grow continuously after 2008, driven by higher premium rates and more new business

APPENDIX

Supplementary Data

Performance Ratios

Definitions

Employers' liability

Professional indemnity

Directors' and officers' liability

A-side coverage

B-side coverage, corporate reimbursement

C-side coverage, entity securities coverage

Employment practices liability

Earned premiums

Written premiums

GWP

NWP

Methodology

Primary and secondary research

Data on the Lloyd's market

Datamonitor's commercial broker survey

Competitor estimates

Further reading

Ask the analyst

Datamonitor consulting

Disclaimer

List of Tables

Table 1: UK directors' and officers' insurance GWP, 2003e-07e (£m)

Table 2: Quarterly movement in premium rates, 2005 Q2-2007 Q4

Table 3: Status of US securities class action cases in Q1 2008 by year filed, 2002-07 (%)

Table 4: Market share of distribution channels in the commercial general insurance market, 2003-06

Table 5: Lloyd's premium income and share of the UK directors' and officers' market, 2002-06

Table 6: Key variables affecting directors' and officers' insurance GWP, 2007e-12f

Table 7: Forecast of UK directors' and officers' insurance GWP, 2003-12f (£m)

Table 8: Total UK liability GWP by competitor, 2002-06

Table 9: Total UK liability GWP by competitor, 2002-06 cont'd

Table 10: Total UK liability market share by competitor, 2002-06

Table 11: Total UK liability market share by competitor, 2002-06 cont'd

Table 12: Commercial liability competitors by loss ratio, 2002-06

Table 13: Commercial liability expense ratio by competitor, 2002-06

Table 14: Commercial liability combined ratio by competitor, 2002-06

Table 15: Commercial liability commission ratio by competitor, 2002-06

Table 16: Commercial liability management expense ratio by competitor, 2002-06

Table 17: Commercial liability net gross premium ratio by competitor, 2002-06

Table 18: Commercial liability net gross premium ratio by competitor, 2002-06 cont'd

List of Figures

Figure 1: UK premium income declined in 2007 due to reductions in premium rates

Figure 2: Premium rates headed south between Q3 2005 and Q4 2007

Figure 3: Many claims are not paid out in the year in which the policy was underwritten, as it can take a number of years for claims to settle

Figure 4: National brokers dominate the distribution of commercial general insurance in the UK in terms of GWP

Figure 5: Commercial liability is believed to be the least at risk to the direct channel

Figure 6: SMEs are buyers of a range of commercial insurance products

Figure 7: SMEs recognize the need for face-to-face discussion with an expert when arranging their D&O cover

Figure 8: The distribution of insurance to SMEs remained largely under the control of brokers in 2007

Figure 9: AIG is the largest player in the UK D&O market

Figure 10: Lloyd's insurers' share of D&O GWP is little more than half its height in 2003

Figure 11: The market is set to more than double in size in 2012 compared to its level in 2003