The loss-making directors’ and officers’ (D&O) market has finally turned a corner, after rates peaked late last year as insurers adjusted prices in a bid to achieve profitability, broker Aon says in a second quarter update.

The combined operating ratio fell slightly below 100% - for the first time in many years – and the premium pool including policies placed with overseas insurer providers rose to more than $1.2 billion at the end of the 2021 financial year, a 300-400% increase over the past three to four years.

“Thanks to a peak in D&O pricing in late 2021, new insurers and capacity has flowed into the market, with competition from new entrants reducing the rate of year-on-year premium increases,” the D&O Insurance Market Insights report says.

Aon says the D&O trends show the market is becoming “more positive” for insureds, after insurers’ appetite shrank and tougher underwriting criteria such as higher excesses were introduced.

“As previously reported, we’re seeing a shift towards more positive outcomes for buyers of D&O insurance compared with their experiences in the market over the last three to four years,” the report says.

“This change is marked by lower increases in pricing (premiums) and deductibles from many providers as the D&O market becomes more sustainable and returns to profitability.”

Aon says as insurers get closer to achieving rate adequacy and expect a softer D&O market cycle, many underwriters are also adopting a more flexible approach to risk selection.

“Risks and industries insurers may have previously avoided due to the overall heightened risk of the pandemic may now be considered,” the report says.

“With more competition in the market, D&O insurers are now competing for business where the company’s risk profile aligns with their requirements.”

Aon says the overall trend for companies to reduce sums insured is motivating insurers to compete for lower attachments in order to maintain or grow market share.

“This trend is particularly clear when it comes to preferred risks,” the report says.

However securing D&O insurance continues to be a challenge for some sectors and for businesses impacted by covid, according to the report.

And while the combined operating ratio has fallen below 100%, Aon says the D&O market still has some way to go to reach a margin that allows insurers to deliver an acceptable dividend to shareholders.

The market is getting closer to sustainability overall but profit margins are still limited for some insurers, Aon said.

Click here to access the report.