A review of the public company D&O marketplace: the hard market for Directors & Officers is history, but challenges remain


Our forecast for the state of the Directors and Officers (D&O) insurance marketplace in 2022 is one of resolution, some stability and increasing competition for most but not all market sectors. Price increases decelerated throughout 2021, but most notably at the very end of the year, as carrier loss results continue to improve and new capacity begins to impact renewals.

A little background to the recent market movements adds nicely to the perspective. Before COVID-19 shut down the economy, we preferred to describe the D&O insurance market as firm versus hard, even though price increases were significant, because capacity was still available for the most part and terms and conditions were unchanged. However, after the COVID shut down, economic factors and adverse D&O loss trends hardened the market by Q2 of 2020 as every aspect of our D&O placements was impacted: premium, retention, deployed capacity, excess attachment decisions, and even terms and conditions. But that is history - now as flat renewals become possible for best accounts in 2022 after two years of tightly controlled increases only strategies previously put in place by most D&O insurance markets.

Perhaps the most interesting aspect of the 2020-21 D&O hard market was the evolution of D&O underwriting by class of business, which we labeled the Hard Market Expansion. By expansion, we mean as rates went up, the difference between pricing for the lowest 20% or most difficult accounts and the highest 20% or best accounts went from being nearly imperceptible (ranging from minus 5% to plus 5%) to being quite dramatic, as in more than 100 percentage points of difference in some cases. But as we head into 2022, the Directors & Officers market movements are contracting, and we are starting to see a ‘Tale of Two Cities' market reaction as many underwriters have already collapsed the four pricing tiers of 2020-21 into just two tiers, namely the quick quotes and the cautious quotes.

Current state of the market

We have found the keys to beating the averages are to start early with your D&O insurance renewal, communicate effectively with underwriters and demonstrate that your risk factors re-class you down a tier, if possible. We forecast that 2022 D&O insurance rates will continue their decline and companies in the most attractive tier will eventually see decreases, especially in the second half of the year. The reason for our favorable forecast is positive D&O claim trends and increased market competition as follows:

  • Reduced securities class action frequency, with a significant drop in merger-objection (M-O) cases, but also the numbers for core (non-M&A) securities cases are down;
  • D&O severity stabilizing in 2021 versus 2020 with ~2% settlement cost inflation and defense costs leveling off after huge increases over the last several years;
  • Core case dismissal rates continuing at nearly a 50% pace, and close to 90% dismissals for the more recent M-O cases;
  • Many carriers have privately acknowledged improved loss ratios and new strategies for growth;
  • Related to all the other positives, we have seen at almost 20 newer markets playing significant roles in competing against current pricing levels (note that some markets are unique to the UK or Bermuda, but many new ones started focusing on US business over the last six months in particular); and
  • Many established markets have shown a greater willingness to quote primary D&O recently.

Despite all the good news, we will start 2022 off with price increases on average, not decreases, as the pattern for the majority of accounts, along with continued pressure for larger retentions and the reluctance to deploy large chunks of capacity. Coverage-wise, we may see an occasional push back on the broader bells & whistles of the policy such as derivative demand sublimits, but the quality of D&O insurance coverage remains excellent. For most renewals we expect to see terms and conditions maintained as is, thus holding onto a decade's worth of substantial, positive coverage innovations. Although brokers and clients may still have to work hard to maintain quality and fight for missing enhancements from time to time, we expect coverage to remain strong in 2022, including for the slightly worse than average risk accounts. In short, strong coverage, more competition and better pricing are forecast for 2022.


There are more than a few important takeaways from our forecast of 2022 D&O Insurance Market Conditions. Our top 10 summary comments are as follows:

  • Pricing levels will eventually flatten out with a small minority of price decreases before 2022 ends. The better risks will be characterized by strong capital adequacy, earnings power and management excellence. Meanwhile, the toughest market sectors will continue to be IPOs, especially DeSPACs, and reverse flow companies, the latter being defined as corporations trading on major US exchanges but with headquarters outside the US. Also, some pressure remains in the pharmaceutical and biotech space, plus any companies adversely impacted by the pandemic and under financial stress.
  • Market competitiveness as represented by the number of carriers and their actual capacity being deployed regularly will continue to move up, and the newer capacity will gradually become more aggressive.
  • A handful of established carriers (other than the current top three D&O market share leaders) will start quoting primary D&O layers more often in 2022.
  • Underwriters will continue to underwrite as intensely as ever, with many newer considerations to take into account. Some of these include:
    • Heavier emphasis on environmental, social and governance (ESG) issues, especially diversity/equality/inclusion (DEI) components and how they may be reflected by the board and key executives
    • A deep dive into cyber security measures and cyber insurance as relates to D&O concerns
    • Impact from the pandemic and any related threats to business health
    • Similarly, any business stresses relating to economic uncertainty
  • Medium severity claims brought largely by newer plaintiff attorney firms will level off, but associated defense costs will be much higher than historic levels in many cases. Certainly, we will confirm that the spectrum of market cap sizes being sued in an SCA has been expanding recently.
  • Frequency of securities claims will return to levels more similar to the 2010 to 2015 time-period. Annual SCA claim counts will no longer approach 400 – or even close.
  • Dismissal rates are likely to remain high, clearing 45% as a longer-term target, as we work through some weaker D&O cases in the mix.
  • D&O coverage quality will remain high, though we foresee market resistance to further expansion.
  • Individual D&O protection or dedicated Side-A limits will remain extremely popular; most programs already invest 30% of their total D&O limits into Side-A only layers.
  • We forecast most D&O carriers will recognize 2021 results as profitable due to both lower frequency and fewer costly claims as well. And equally important, carrier results will benefit from the larger retentions and continuing high dismissal rates on the newer claims. In fact, this should allow some D&O claims to once again periodically resolve without a carrier payment.

All the above conclusions aside, carriers still emphasize to us that the client's risk profile remains the primary variable dictating renewal outcomes. Therefore, expect that the client's market cap and unique industry, loss experience, location, financial health, communication style and other individual account nuances will continue to have a significant impact on D&O insurance renewals.


The information contained herein is offered as insurance Industry guidance and provided as an overview of current market risks and available coverages and is intended for discussion purposes only. This publication is not intended to offer legal advice or client-specific risk management advice. Any description of insurance coverages is not meant to interpret specific coverages that your company may already have in place or that may be generally available. General insurance descriptions contained herein do not include complete Insurance policy definitions, terms, and/or conditions, and should not be relied on for coverage interpretation. Actual insurance policies must always be consulted for full coverage details and analysis.

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