By: Paul Lefcourt, Co-Founder and Management Liability Practice Leader
Over the last 12-24 months, several management liability insurance (“MLI”) carriers have shifted their underwriting appetite/guidelines nationally for nonprofit and privately-held risks, most dramatically outside of California. Instigated primarily by newer market entrants, these changes include one or more of the following:
This current shift is being fueled by a surplus of capacity, largely coming from the infusion of private equity and venture capital coupled with fewer catastrophic P&C losses. In trying to determine how to deploy their unused capacity, larger carriers are attracted by MLI’s historic overall underwriting profitability, while newer carriers and MGAs are benefiting from the massive VC/PE capital coming into our industry. Some mostly newer MLI carriers are eager to write accounts at lower rates and with more liberal terms, while several more established carriers are trying to get increases on renewal, despite intel telling us MLI losses are not getting better and in fact may be getting worse, especially for private D&O.
You may be wondering, “Are MLI claims really getting worse?” The answer is yes, most notably in California as well as a few other tougher states such as FL, IL, NY, and NJ. Based on our discussions with MLI carriers, here are a few of the reasons:
Despite losses getting worse, MLI rates are going down and terms are broadening. This begs the question: Why is this happening? Based on our conversations with carriers in this niche, here are a few reasons:
Based on the above, what can our nonprofit and privately-held management liability insureds expect as a result of the changes in the marketplace?
Our recommendation is to set expectations as follows:
As we move into 2017, it will be interesting to see if mounting MLI losses take enough of a bite out of the large deployment of MLI capacity, reversing the softening trend of the market back toward a hardening maret. Another potential element that could affect the MLI market condition is the evolving economic and political landscape.
As always, please don’t hesitate to contact your local Socius representative for further details related to appetite changes of any specific management liability markets.
Co-Founder and Management
Liability Practice Leader
Socius Insurance Services, Inc.
301 Howard Street, Suite 1030
San Francisco, CA 94105