UK D&O premiums set to reach US highs

British and American financial institutions saw premium increases of 15% on average in the second quarter of 2009, according to Aon’s pricing index.

‘Renewals have been mixed and will continue to depend on specific risk factors and financial performance,’ said Aon.

The index found that D&O pricing increased 4 % in the second quarter as compared with the second quarter of 2008.

Current rates in the S&P Financials sector (banks, diversified financial, insurance and real estate) are up almost 15 %. The economic turmoil means rates are increasing significantly, capacity is constricting and coverage terms are tightening.

All other S&P sectors (service, manufacturing, technology, etc.) were flat, marking the first time in more than three years that rates did not decrease, reported Aon.

“The delicate balance between the forces holding D&O prices down and the need for rate increases could soon shift in the favor of underwriters.

Aon commented: ‘In the UK abundant capacity for most buyers means that those prepared to shop around can still find bargains in the market. This is more so in the excess than the primary market as we see new entrants fighting the established players for market share.’

Adam Codrington, executive director at Aon’s financial services group, said: ‘There has been a definite rise in UK claims activity but mostly confined to the primary layer of programmes. We anticipate that this will lead to frictional erosion of margin for primary players, while excess players continue to be relatively unencumbered by non FI related claims.

He added: “As such, we are seeing attempts to increase premiums in many incidents but they are being held up by competition in the market.”

“The delicate balance between the forces holding D&O prices down and the need for rate increases could soon shift in the favor of underwriters,” warned Michael Rice, national practice leader of Aon’s financial services group in the US.