Irrational underwriting behaviours are driving a “relatively shambolic state” in the directors’ and officers’ (D&O) market, with sharp rate declines and widening coverages increasing potential loss severity, a Lloyd’s senior executive has warned.

“While much of the focus in the class has been in the US, we are now seeing these same trends spreading across Australia and Europe as carriers re-enter local markets,” Lloyd’s Chief of Markets Patrick Tiernan said in a third quarter message.

Mr Tiernan says he had raised concerns in June about what appeared to be “irresponsible giving away of rate” and in worst instances there had been risk adjusted decreases of around 20%.

In addition, Mr Tiernan says line sizes are starting to increase as more capacity enters the market, increased limit factors on lower layers are squeezing rate on the excess layers and widening coverages are being given that increase frequency and severity of loss potential.

“We believe there is a litany of irrational underwriting behaviours driving the relatively shambolic state of that market,” he says in the message.

“I think we are all running out of the adjectives to describe the moronic underwriting approach being adopted by some elements of the market.”

Mr Tiernan says Lloyd’s expects “dynamic management” and this includes active oversight of coverholders and managing general agent relationships.

Overall, the Lloyd’s half year financial results demonstrate resilience being built into the portfolio, while performance remains the number one priority for the market, he says.

Other focus areas for Lloyd’s include casualty, particularly US general liability, and specialty classes impacted by geopolitical risk.

“As a market we have not yet demonstrated the same zeal for rate adequacy in the casualty book as we have seen in property,” Mr Tiernan said. “This is particularly true for US general liability, where rate is barely keeping up with inflation.”

Lloyd’s is also considering expanding its LCM5 framework, which defines the five key peak perils to the market. Currently these are US wind and earthquake, Japan wind and earthquake and northern European wind.

But Mr Tiernan says other perils “not too far off” the lowest of the LCM5 include US flood, US severe convective storm, US wildfire and New Zealand earthquake.