Aon says upward pressure will remain on directors’ and officers’ (D&O) rates for the rest of the year but believes signs of stability have emerged, giving rise to “cautious optimism” that the stressed market may be on the mend.

Substantial premium re-alignment secured by the D&O insurance market over the past three renewal cycles, and in particular the most recent renewal cycle, has placed the sector in a more sustainable position, the broker says in its latest industry update.

The Australian D&O premium pool has grown in excess of $800 million, Aon says, citing figures from actuarial firm Finity.

Signs of “green shoot” capacity from new market entrants, along with recent positive developments in the risk landscape such as increased regulatory oversight of class action litigation funders, have given Aon cause to feel “cautiously optimistic” as the second quarter gets underway.

Plans by the Federal Government to permanently ease disclosure rules for listed companies after changes were introduced last year during the pandemic are also seen as a positive for the D&O market, according to the Aon update.

“While [last year] held significant uncertainty, we are looking at 2021 with cautious optimism,” Aon says.

“As we enter [the second quarter], we are cautiously optimistic that the emerging signs of a more tempered legislative and case law environment will lead to greater D&O market stability in the medium term.

“We anticipate ongoing upward premium pressure for the balance of 2021, with some easing in the rate of change relative to 2020."

Securities class action litigation has been blamed for the troubled D&O market, forcing insurers to withdraw, cut back capacity or impose huge excesses and onerous conditions as well restrictions. As a result, rates have increased as high as 100% in recent years.

Australia is seen as having the most litigious environment outside of the US.

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