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Intro (00:00):
You are listening to the Alliant Specialty Podcast dedicated to insurance and risk management solutions and trends shaping the market today.

Tim Crowley (00:09):
Hello everyone. Thank you for joining an Alliant Specialty podcast to discuss the directors and officers and management liability trends for the first half of the 2024 calendar year. This is Tim Crowley, a Senior Vice President in Alliant's Management and Professional Solutions group, and joining us to launch into our discussion is Travis Barnett, First Vice President in our Management and Professional Solutions group. Travis, can you please give us an update on the public company D&O insurance landscape in the first half of this year?

Travis Barnett (00:38):
Absolutely Tim, and thanks for the time to do this. Capacity so far remains quite robust. We saw a lot of insurers jump into the marketplace during the COVID years starting right around the 2020 timeframe and 2021. From then, we haven't really seen any substantial consolidations or dropout in the capacity thus far, but we do see that there are a few insurers that are hungry for writing business and even some that are now starting to tout larger capacity at times on certain risks, especially when they are more pristine risks. As far as what we're seeing from a pricing perspective, because of this capacity we are seeing the pricing remains soft still, not to the tune that we saw in 2022 timeframe, but we are still seeing decreases in premiums even on some of the tougher risks out there in the marketplace. The pricing is and decreases are more substantial for public companies that are newly public companies or that have had claims experiences in the recent past that have passed those trials from having the claims experiences. As far as retentions are concerned, they're largely stable on occasion. We have seen some decreasing for those who are newly public, or we have seen companies who have had slightly higher retentions go out more on a proactive basis to try and reduce their retentions as well. There is some cost to do so, but we have seen insurers being willing to reduce retentions at times. Besides that, coverage is king in this regard, and we are seeing that there is a big push for differentiation amongst the insurers.

With that we have seen a number of insurers who have not been open to providing coverages such as into the investigation or other types of coverages that have been around for a while, starting to provide those for a more economical additional premium and at times even providing it for no additional premium at all. We do see that there is again, an attitude amongst the insurers, an appetite for the insurers to try and differentiate themselves, and we have seen other newer products come onto the marketplace from a public company perspective to provide better coverage to allow them to continue hitting their goals from a premium perspective. Overall in the marketplace, we do find that it is very favorable for clients who are getting insurance and who are procuring it, and we do anticipate that this will continue through the rest of 2024. It is a flip of a coin of when the marketplace might have some changes. As we know, in 2020 there was an inflection point with COVID that allowed them to start charging a substantial amount more and changing their underwriting guidelines.

Tim Crowley (03:07):
Thanks Travis, appreciate the comprehensive overview. It sounds like the market conditions for policy holders are still trending favorably, and hopefully we continue to see that for the balance of 2024. One item that you didn't mention and maybe you could give us a little color on is are you seeing the underwriters in Lloyd's of London becoming more competitive in the present landscape?

Travis Barnett (03:25):
Absolutely. We are seeing Lloyd's of London opening up more to be more competitive. We are seeing them seeking deals out again. In conjunction with that Tim, we are seeing that Bermuda is also starting to participate more aggressively as well in trying to get more U.S. domicile business.

Tim Crowley (03:41):
Yes, great. That's my experience as well, and I think you touched on the retentions a bit. One of the lasting impressions of the hard market post COVID era is that retention levels for public companies have risen in a five, six years span and minimums for retention levels seem to be in that million to million and a half, even for some relatively smaller public companies. So, similar experience as well. Moving on, I'd like to introduce everyone to Matt Green, a First Vice President in Alliant's Management Professional Solutions group located in Texas, and Matt's going to give us insight specifically related to the oil and gas and energy sector.

Matt Green (04:13):
Thanks, Tim. When we're talking about the D&O landscape and a public perspective for energy companies, really what I would say at this point is largely echoing what Travis is talking about from the general overview. We as energy brokers have been talking to underwriters for many years saying that energy risk really should be viewed as a preferred risk for a long time. It now seems that the underwriting community is agreeing with us, taking a look at both a risk profile as well as claims experience and realizing that the energy sector is one that certainly can be profitable. To a large extent companies at this point are growing, so certainly something that we've seen carriers open up their underwriting appetite more than I've seen in quite a number of years to be receptive to both oil and gas as well as alternative energy. One of the things that we're always keeping our eyes on are items such as SEC disclosures that might impact energy companies more directly than other sectors such as the climate change disclosure regulations that passed earlier this year. Now we鈥檙e in a wait and see pattern due to litigation, but certainly if those climate change disclosures were to hit, that's certainly one of the things that our clients and energy risk in general would want to take into account when it comes to their overall risk profile.

Lastly, when we're talking about energy and a risk profile overview, we do see some underwriters, particularly those that are non-US owned and perhaps owned by a European holding company, be more intrusive when it comes to exactly what particular companies are doing as respects to their environmental and overall stewardship of environmental concerns. That is something additionally that we're keeping our eye on because that can impact not only current coverage that we may have with those carriers but also if that really were to be widespread, might begin to contract the marketplace. Those are the general thoughts Tim, when it comes to energy.

Tim Crowley (06:21):
Great Matt, thanks for those careful insights. I know we'll be continuing to monitor and keep our eyes on all the developing trends in the oil and gas sector, so appreciate that insight. Let's go back to Travis for a second. Maybe you can give us commentary on the securities class action trends that we experienced in the first six months of the year. There was a little more than a hundred that were noticed during those first six months and wanted to go back to you for insight on what you're seeing.

Travis Barnett (06:44):
Yes Tim, thanks for that. We've seen approximately 109 from the count that I've seen in the first half of 2024. And to give that some context, there were 114 in the first six months of 2023, and I do want to note that those do not include any actions brought in state courts. While it is slightly below the 2023 first half numbers, we did see some slowing at the end of 2023, and there were only 213 or so securities class action filings in 2023 total. We are tracking to be on par if not slightly above the 2024 numbers. With that, we are seeing interesting trends with this where we are seeing the tech industry getting hit, and I believe that there's probably close to 28 or so that are being hit in the tech sector. The next highest as far as who has been hit with securities class actions is in the life science space. It is trending very closely to what we've seen in the past where life science has led the way, technology we've seen ebb and flow and be more or less than that. Some other things that we're watching with this, especially with it being an election year, is how the regulators are going to react coming up as far as the SEC, the cyber disclosures and other things where we've seen actions come through and have seen them completed. We are watching those trends very closely as well as what changes there might be coming in 2025.

Tim Crowley (08:06):
Great, thanks Travis. It seems like it's pretty consistent for the first half but we'll see if anything's changed in the next six months. So moving along, I'd like to introduce everyone to Sara Heller from our Midwest offices. She is here to give us some commentary on the employment practices and fiduciary lines of insurance for publicly traded companies. Sara, welcome aboard.

Sara Heller (08:25):
Thanks, Tim. I'll start talking about the fiduciary liability marketplace. Obviously we saw hardening in 2021 and 2022 increased pricing and retentions and reduced capacity from insurers. I think frequency and severity of excessive fee litigation claims remain a top concern among fiduciary liability insurers. Fortunately the market did stabilize in 2023 seemingly due in part at least to a drop in class action. We believe that the market is likely to remain stable through the balance of 2024 and that's what we've seen thus far for public companies with no material change in risk. In most cases we're seeing primary limits not exceeding 10 million with some exceptions, and some carriers are continuing to limit their appetite and capacity to 5 million. But, I think we are seeing increased competition for primary and low access capacity due to expanding carrier appetite. Alongside the softening we're seeing in other lines, I do think carriers are eager to expand their relationships with our clients to include fiduciary liability. And then as far as coverage, we're seeing some modest coverage enhancements.

I don't think a lot of carriers are eager to provide any groundbreaking coverage amendments because people are cautiously optimistic given that there are about 150 active excessive fee litigation claims still pending. The resolution of those and any particularly large settlements could have a rebounding impact there on what we're seeing in fiduciary. As far as retentions, we do continue to see higher retentions specifically for excessive fee claims or all forms of mass or class action claims. Particularly for those insureds with plan assets succeeding 500 million, and we are however seeing some relaxing of those requirements from carriers, particularly for insureds with smaller plans, which is increasing competition as well. As far as pricing, I would say that conservatively we're seeing renewal premiums in the range of sub five to plus five percent. It could be higher or lower dependent upon previous rate increases or corrections in renewal terms.

Tim Crowley (10:29):
Great, Sara. Thanks for that overview. It is interesting. I think three or four years ago we probably, we didn't spend too much time talking about fiduciary liability insurance. Not that it wasn't important, it's just that marketplace wasn't moving as fast as maybe some of the other areas that we placed. But I think I could speak for all when we say that fiduciary liability insurance is a big part of our renewal conversations, and I think we're all doing the right thing with our clients and marketing those risks, not just to the incumbents but alternative carriers to make sure that there are limited surprises or substantive changes to the renewal terms. So moving on, I'll pass the line back to you, and we can talk about employment practices liability.

Sara Heller (11:04):
Yes, absolutely. Employment practices liability continues to be more volatile when we're talking about the management liability lines. Premium increases and coverage restrictions for this line of business really vary across industry sectors and geographies and are dependent upon potential exposures for these public companies. Prior claims history is something that continues to drive insurer appetite when it comes to EPL overall rate increases, I would say moderated in 2023, maybe to a lesser extent than we've seen on some of the other lines, but it does seem that the stabilization and the moderation of the increases is a trend that we've seen thus far in 2024 and do expect it to continue. It seems like most carriers are open for business and eager to see new submissions, so that will help to improve the overall climate. As far as capacity and coverage, domestic markets are continuing to provide lower limits. We obviously will still see $10 million on a primary basis for our public insureds.

However, there are occasions for those smaller public risks as well where carrier appetite is really limited to five. On an excess basis, we are continuing to see a correction in the increased limit factors that were historically very competitive. For excess EPL risk, we are still seeing some correction there. As far as terms, restrictive terms still apply for companies with significant exposure in high risk states, particularly California, New York, New Jersey and then others including Illinois. We're still seeing carrier restrictions with regard to employee privacy exclusions and biometrics exclusions. As far as retentions, carriers are continuing to seek separate retentions for mass or class action claims, especially in California. Increasingly we're seeing carriers require a separate higher retention for highly compensated individuals in specific industries. As far as pricing, I think that conservatively we're seeing flat renewals with incumbents upwards to 10%. Again, really dependent upon the controls that those insureds have in place in prior loss history.

Tim Crowley (13:17):
All great points. Thank you, Sara. We spent a bunch of time on this discussion talking about public companies, but we did also want to touch upon the market conditions for privately held companies as well. In that space what we've seen is that while the management liability marketplace for private companies is favorable, I would say that most of the pricing changes are not as meaningful from a percentage standpoint as we have seen on the public arena. While we're seeing year over year decreases for sure for private companies, depending on the risk profile, a lot of our renewals are closer to flat with some mild savings. That being said, the marketplace remains extremely competitive. There's more than 40 D&O insurers that can properly and adequately write D&O insurance for private companies, and nearly all of them are remaining quite competitive and active in the space and looking to grow their market share in policy count and premiums. There鈥檚 certainly opportunities amongst qualified insurers to take advantage of a comprehensive marketing effort. We would still anticipate absent of claim activity or other risk profile changes that we would recommend and suggest seeing decreases from a pricing perspective. From a viewpoint on retention levels, those are relatively consistent in our experience. Again, absent some substantive changes in the risk profile, those are generally similar to last year. Now on the perspective of coverage, this is where we are starting to see some of the underwriters become a more aggressive and offering broad coverage grants that maybe they weren't giving two or three years ago.

Things like either an entity investigations coverage or supplements for things like antitrust and contractual liability type claims. Some of those coverage features were being taken away during the harder market times, and now we're seeing that some of those coverage grants are coming back to the market due to that, the aforementioned market competition. Especially for our private equity sponsored clients, they seem to be having success getting those sharing agreements added into the forms. But with respect to fiduciary and employment practices, I would think that Sara's comments before remain largely the same. Maybe with the exception of the excessive fee cases, we're not seeing the retention go quite as high in the private side, but depending on the plans, the amount and the plans and the controls in place, things like RFPs for selecting your administrators, but generally I would say that the retentions are much more favorable in the fiduciary space for private companies.

Travis Barnett (15:34):
Tim, jumping in here from a California perspective on the employment practices side for EPL, one thing that we've been watching has been the workplace violence prevention plans that's been handed down to California for SB 553. It's a requirement for all California employers, and the law does not allow for any implementation grace period. We鈥檙e wanting to make sure that when our clients know about this rapidly approaching thing that has actually now already hit, and then from there, make sure that there are workplace violence prevention programs in place and allowing them to see templates if needed in that because while it is not technically an employment practice liability ensuring agreement, it does dovetail on many private company policies where we can get some coverage for workplace violence.

Tim Crowley (16:23):
Great points, Travis, appreciate you jumping in there. That concludes our discussion on the first half of 2024 market conditions for directors and officers, fiduciary liability and employment practices liability. It'll be interesting to see where the market trends and heads towards in the balance of the calendar year, but we'll be sure to keep everyone updated on the latest trends and landscape developments. Appreciate everyone listening today and thank you for being a part of Alliant Specialty Podcast.