By Isha Marathe

April 4 - (The Insurer) - D&O insurers may increasingly look to private companies, which enjoy less regulatory scrutiny and lower exposure to securities class action threats, to balance their portfolios, insurance executives and brokers forecast.

Speaking at a Professional Liability Underwriting Society D&O conference in New York last month, Bill Dean, the senior vice president and head of private/non-profit division at Berkley Professional Liability, said the private D&O market is showing classic signs of a soft market, with two-year policies becoming more common, excess pricing more favourable than primary, anti-trust exclusions being taken off policies, and hints of a lack of underwriting discipline.

"I think there are probably 40 to 50 markets that are writing private company business, so it's crowded, but there's a reason for it," Dean said.

"There are more private companies than ever, (and) there are less public companies. The financing is there to stay private, they don't want to take on the regulatory costs of (going public)."

Soft D&O market

A recent Lockton report showed that the D&O market is stable for most public and private insurance buyers. In the fourth quarter of 2024, D&O rates for public companies fell 9.5%, and D&O rates for private companies and non-profit organisations fell 5.5%, the report said.

In a report in mid-March, Aon commented that pricing for both public and private companies remains stable, with lower rate decreases than a year ago. Private and non-profit organisations' pricing is down in single digits for clients with positive risk stories in favourable industries, the broker said.

“Price increases are evident across large non-profit organisations including higher education and healthcare. Excess program pricing continues to be more favourable than primary placements, often resulting in single- to double-digit decreases,” its report said.

Taylour Donovan, senior vice president at CAC Specialty, said she has seen overall D&O market premiums remain competitive, with retentions remaining high. While larger carriers offering traditional D&O coverage have seen a spike in claims activity, they are still showing an appetite to grow their top line and increase their renewals.

"So overall capacity is still very strong," Donovan said.

"(But) in the first quarter (of 2025), we have seen some pushback coming out of the gate; we are seeing (the industry) wanting rates to stay flat," she said, noting that both public and private sectors are seeing higher claims activity. "So we are seeing a little bit of a break there."

Indeed, the Lockton report showed that while some private and non-profit D&O buyers can still secure rate reductions at renewal, most carriers have indicated that rates have bottomed out.

Good risks are increasingly renewing flat or with slight reductions of 5% or less. The soft market cycle of the last 12 to 24 months has meant that most private and non-profit buyers achieve material reductions in rate and/or spending, depending on their exposures, Lockton said.

Managing volatility

Paul Giliberto, head of private/non-profit management liability at Zurich Insurance, said at the conference that carriers experienced more volatility than they had expected while the industry was in a hard market.

"If constructed properly, a D&O portfolio can provide more stable and predictable earnings through the cycle without the same level of volatility (and) the same level of pricing increases," Giliberto said.

"I think more carriers are looking for more stability in their financial portfolios, and that's why you are seeing a lot more competition."

Essentially, while private companies are subject to federal securities laws and directors and officers within the sector may face False Claims Act allegations or antitrust violation sanctions, they are not exposed to special purpose acquisition company-related litigation or shareholder litigation. This, combined with companies in less regulated sectors, means the sector is likely to see fewer D&O claims than their public counterparts.

Of course, while shareholder litigation may not be as much of a problem for private companies, they come with other exposures.

For instance, the Lockton report found that bankruptcy remains a key loss driver for private companies, though claims costs have been lower than expected in the past two years.

"Bankruptcies are a driver of disparity in our portfolios," Zurich's Giliberto said at the PLUS conference. "(But) not all bankruptcies result in claims in the private space, which might contrast with what we see in the public company space."

The panel noted that with Donald Trump's second presidential administration bringing new employment and human resource challenges around diversity, equity, and inclusion and immigration which are likely to affect claims in the private D&O sector, it is still too early to know what the impact will look like.

"Businesses and insurers are watching the Trump administration’s approach to DEI, which could to lead to more claims, especially for government contractors," the Lockton report said.

"These could include claims brought by employees and state and federal regulators alleging company policies and practices violate civil rights laws, qui tam litigation against federal contractors under the False Claim Act, and lawsuits brought by shareholders."