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D&O volatility continues as class actions mount

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The market for directors’ and officers’ (D&O) insurance continues to deteriorate as class actions ramp up.

Broker Marsh warns the number of D&O claims is now exceeding the premium pool by a significant margin, and some insurers are leaving the market. Insurers are declining to renew policies if they cannot achieve required premium rises, it says.

Aon says insurers have stepped up premium increases to return to profit, and are lifting minimum retentions for claims by listed companies, to make them bear some of the risk.

An Aon Insights paper says there are about 20 open class actions, excluding multiple actions, and class action settlements by listed companies totalled $1.74 billion last year. Marsh puts the number at 16.

Upward premium pressure is expected to continue until it is eased by competition, Aon says.

It says insurers are less willing to provide premium guidance more than three months out from renewal – a sign of ongoing volatility.

And they are increasingly selective with the risks they will insure and the terms offered.

Marsh notes insurers have a limited appetite to cover against shareholder class actions below $100 million in premium.

The Australian Law Reform Commission has proposed several changes in a discussion paper on whether third-party litigation funders should be subject to Commonwealth regulation.

However, Aon says it is unlikely these proposals will provide relief from securities class actions.

The average settlement is $50 million, Aon says.