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D&O Insurance in Europe

  • December 2014
  • -
  • Finaccord
  • -
  • 215 pages

D&O Insurance in Europe is about the market for directors' and officers' liability cover in Austria, Belgium, France, Germany, Italy, the Netherlands, Spain, Sweden, Switzerland and the UK. Valued at just under EUR 2.3 billion in gross written premiums in 2014 across the ten countries, this market has been growing in both nominal and real terms in most countries, and in aggregate has been characterised by consistent profitability.

In addition to documenting the development of the market value from 2010 to 2014, the report also divides it for the most recent year for three key segmentations: between publicly listed corporate enterprises, unlisted corporate enterprises and other entities (e.g. non-incorporated businesses and the not-for-profit sector); between the financial services sector, the non-financial services sector and the manufacturing / primary sector; and between underwriters based in the countries themselves and underwriters located outside of them.

These unique market splits are based in part on a survey of close to 200 leading brokers and underwriters of D&O insurance across the ten countries. In each country, this same survey also identifies the underwriters of this type of cover used by brokers on a regular basis, gives an input into Finaccord's estimates for the market shares of underwriters of D&O insurance, provides a basis for commentary surrounding distribution channels used for this type of cover, informs observations concerning trends in claims by type of insured entity, and guides Finaccord's forecasts for the market value through to 2018.

Table Of Contents

DandO Insurance in Europe
By some distance, Germany and the UK are the largest markets in Europe for DandO insurance 2
By legal status of insured entity, the market can be segmented into three main categories 3
By sector of insured entity, the split of the market value varies substantially by country 5
Across the ten countries as a whole, AIG is comfortably the market leader by premiums written 7
In aggregate, the market for DandO insurance in Europe is both growing and profitable 8
What is this report about? 10
Rationale 10
Several factors underpin the rationale for the production of a study about DandO insurance 10
Methodology 10
Research program 10
Market data analysis 10
Definitions 11
DandO insurance 11
Policies are usually taken out by companies rather than by company managers… 11
… and typically pay for both defence costs and the damages paid to the claimant 11
DandO insurance can be bought by a variety of different types of entity 11
In Europe, policies typically incorporate Side A and Side B cover but not always Side C cover 11
Stand-alone cover bought for certain specialised risks is excluded from the definition of DandO insurance 12
Premiums 12
Sectors 12
Abbreviations 13
Exchange rates 13
Finaccord 13
Introduction 15
Number of insurable entities 16
Many enterprises are theoretically eligible for DandO insurance in Europe 16
… although only a fraction of these have actually taken out cover 16
Financial firms make up just under 2% of the total number of corporate and non-incorporated enterprises 18
Across the ten countries, the number of publicly listed companies fell slightly between 2010 and 2014 20
Germany hosts the highest number of non-listed companies with annual revenues above EUR 10 million… 22
… although this constituency has been growing most rapidly in the UK 22
Market value, growth and segmentation 23
The value of the DandO insurance market in Europe has risen to well in excess of EUR 2 billion 23
All ten countries saw premiums grow in nominal terms between 2010 and 2014 24
Germany, Switzerland and the UK have the most developed markets for DandO insurance relative to GDP 26
As a percentage of the total general liability class, DandO insurance is becoming more important everywhere 27
Publicly listed companies account for a majority of DandO premiums across Europe as a whole… 29
… although not in every country 29
By sector, financial institutions buy the most DandO insurance in Europe… 32
… although in Germany, the manufacturing / primary sector is the largest 32
DandO penetration rates and premium levels in the financial sector are especially high in the UK 34
In the non-financial sector, the development of the German market is not far behind that of the UK… 35
… and it is well ahead of the UK in the manufacturing / primary sector 36
Almost EUR 200 million of DandO cover is underwritten outside of the insured party's own country 40
Penetration rates 42
Among publicly listed companies, there is most potential to increase penetration in Spain… 42
… and most in Italy among unlisted corporate enterprises of sufficient size 45
Underwriter market shares 47
A total of 50 different DandO underwriters work on a regular basis with brokers in at least one country 47
AIG enjoys the highest rate of regular utilisation by brokers in most countries 49
Around one third of the total market is underwritten by insurers outside of the leading five 51
The market leaders are active to one degree or another in all ten countries surveyed 51
Claims costs 53
Across all ten countries, claims costs are likely to account for just under two thirds of total claims costs 53
Future outlook 56
The total market value is expected to rise by around EUR 540 million up to 2018… 56
.with the strongest growth predicted in Italy and Spain 56
3.0 AUSTRIA 59
Introduction 59
Regulatory background 59
Stock corporations (‘Aktiengesellschaft') in Austria have a two-tier board structure 59
Companies rather than their directors are usually the policyholders 59
Claims made against limited liability companies often result from bankruptcy proceedings 60
Number of insurable entities 60
The core audience is made up of around 4,200 enterprises with annual revenues above EUR 10 million… 60
… with DandO insurance rarely acquired outside of this constituency 60
Market value, growth and segmentation 61
The Austrian market is small but has been growing quite rapidly… 61
. mainly as a result of higher rates of penetration among SMEs… 62
… with premiums also having tended to fall for this type of customer 62
Unlisted corporate enterprises account for the majority of the Austrian market value… 63
… and financial services institutions for over 40% of it 63
A substantial proportion of the Austrian market is underwritten outside of Austria itself 66
Penetration levels 66
There is most scope to increase penetration rates among unlisted enterprises of a sufficient size 66
Underwriter market shares and specialisms 67
Chubb and AIG are the underwriters most regularly used by brokers of DandO cover in Austria… 67
… with six insurers likely to account for around 85% of a fairly concentrated market 68
… albeit the specific client focus of each is somewhat different 69
Some local insurers have created partnerships for DandO insurance with international specialists 70
Key brokers and broker specialisms 70
GrECo JLT is likely to be the leading broker of DandO insurance in Austria… 70
… with specialist competitors such as Infinco and Von Lauff und Bolz also present 71
Trends in claims and key risks 71
Both claims ratios and claims frequency are understood to have been increasing… 71
… especially among banking institutions 71
Defence costs account for an estimated 55% of all DandO claims paid out in Austria 71
Future outlook 72
Liability risks are rising and Austria could eventually reach levels of litigation already seen in Germany 72
4.0 BELGIUM 74
Introduction 74
Regulatory background 74
Belgian ‘societes anonymes' have traditionally operated with a unitary board system 74
Even slight negligence is sufficient to trigger a director's liability 74
Minority shareholders' actions on behalf of a company are extremely rare 75
Number of insurable entities 75
Belgium's core target market for DandO cover has declined slightly in recent years… 75
Market value, growth and segmentation 76
… although the value of premiums written moved up by around EUR 10 million from 2010 to 2014… 76
. driven by higher penetration levels, especially among smaller and medium-sized companies 77
Around 6% of the total market value is due to enterprises outside of the core target market… 78
… and just over a third to companies in the manufacturing and primary sectors 78
A comparatively large percentage of business is underwritten by insurers based outside of Belgium 81
Penetration levels 81
Around 160 publicly listed companies in Belgium have taken out DandO insurance… 81
… and almost 3,000 unlisted ones with annual revenues of more than EUR 10 million 81
Underwriter market shares and specialisms 82
AIG is the only DandO underwriter used regularly by all of the brokers interviewed… 82
… and another four providers are likely to hold a market share in excess of 5%. 83
… with the second, third and fourth positions closely contested by competing underwriters 84
Two underwriters, including one indigenous Belgian player, focus on providing DandO cover to SMEs 85
Key brokers and broker specialisms 85
As well as Aon and Marsh, Van Breda Risk and Benefits is a leading broker of DandO insurance in Belgium 85
Trends in claims and key risks 85
Companies active in countries with more litigious cultures than Belgium cause most concern 85
Insolvency-linked claims in the construction sector have risen in recent years but may have peaked 85
Future outlook 86
Most market participants anticipate that premium rates will stagnate or even fall slightly 86
5.0 FRANCE 88
Introduction 88
Regulatory background 88
Stock corporations in France can be set up using either of two formats 88
Rules concerning directors' duties apply to all types of company in broadly similar ways 88
The burden of proof in management liability lawsuits lies with the claimant 89
Shareholders can bring lawsuits on behalf of the company… 89
… and may also find it attractive to initiate criminal proceedings against directors. 89
Number of insurable entities 90
The core target market for DandO insurance in France is composed of close to 30,000 corporate enterprises 90
As in some other countries, the number of publicly listed firms has declined somewhat in recent years 90
Market value, growth and segmentation 91
The French DandO insurance market rose in value by around EUR 40 million between 2010 and 2014… 91
… easily outpacing both the French economy and the wider general liability insurance sector 91
Trends in premium rates have been uneven among financial institutions, depending upon perceived risk 91
Around one third of the French market value is due to unlisted corporate enterprises… 92
… and a not dissimilar proportion to the manufacturing and primary sectors 93
Most business underwritten outside of France is dealt with at Lloyd's of London 96
Penetration levels 96
A small minority of publicly listed companies still lacks DandO cover 96
Underwriter market shares and specialisms 97
One underwriter is used frequently for DandO cover by all brokers interviewed… 97
… which means that it is also a very clear leader in terms of market share 98
ACE has begun to target SMEs and not-for-profit entities as customers for DandO policies 99
AXA serves larger corporate accounts through AXA Corporate Solutions, a separate division… 99
… as does Allianz 100
Chubb and Liberty International Underwriters are long-established competitors in the French market 100
Key brokers and specialisms 100
Most DandO cover is bought via brokers although a small amount goes through both agents and banks 100
Marsh is likely to be the largest broker for DandO insurance in France, followed by Aon and Gras Savoye 100
Trends in claims and key risks 101
DandO insurance in France is likely to have been a profitable activity in recent years… 101
… although some financial institutions are causing concern… 101
… as are selected other sectors including agro-food companies, co-operatives and hospitals 101
Future outlook 102
The forecast market growth rate for 2014 to 2018 is very similar to that for 2010 to 2014… 102
… with rising penetration rates offset by softening or stagnating premiums 102
6.0 GERMANY 104
Introduction 104
Regulatory background 104
Management board members in Germany are generally considered to face very significant liability risks 104
The great majority of lawsuits are started by supervisory boards 104
In the case of limited liability companies, DandO claims are often related to bankruptcy proceedings 105
Number of insurable entities 105
The number of insurable entities is growing in the case of unlisted entities but falling among listed ones 105
Very few non-corporate entities in Germany have taken out DandO insurance. 105
Market value, growth and segmentation 106
The German DandO insurance market enjoyed robust growth between 2010 and 2014… 106
… in spite of the fact that premiums rates have been falling for many policyholders… 107
… if not for certain types of financial institution 108
Penetration rates are rising rapidly (albeit from a very low base) among not-for-profit entities 108
Around a half of the total market value is due to the manufacturing and primary sectors 109
Around 90% of the German DandO insurance market is underwritten in Germany itself 112
Penetration levels 112
Senior managers of publicly listed companies generally expect to be provided with DandO cover 112
There are likely to be well over 20,000 corporate enterprises with DandO insurance in Germany 113
Underwriter market shares and specialisms 113
Around 20 underwriters of DandO insurance are used by brokers in Germany… 113
… with Allianz likely to be the market leader 114
AIG is re-building its position, especially among larger corporate clients 115
Chubb was one of the companies to first introduce DandO insurance to the German market 116
Underwriting agency VOV is especially strong in the SME market 116
DUAL Deutschland is an important co-insurer for larger risks in the German market 116
HCC and XL Group both focus primarily on large corporate risks… 116
… while Hiscox has pioneered DandO insurance products for start-up companies 116
Relatively new entrants include Catlin, CNA, Markel, Mitsui Sumitomo, QBE and W.R. Berkley 117
Many savings banks are insured by public sector insurance companies 117
Key brokers and broker specialisms 117
A few insurers make DandO cover available via their agency networks 117
Gebrüder Klose is a notable specialist working with captive brokers of large German companies 117
Hendricks and Co. is likely to intermediate the largest number of DandO policies in Germany 118
Trends in claims and key risks 118
The DandO insurance market remains profitable but has experienced rising claims in recent years… 118
… especially among companies with annual revenues of more than EUR 50 million… 118
… and certain types of investment fund 119
Defence costs account for around 65% of all DandO claims paid out in Germany 119
Future outlook 120
The consensus of opinion is that premium rates for DandO cover will bottom out in 2015 120
A debate to reform management liability is underway in Germany 121
7.0 ITALY 122
Introduction 122
Regulatory background 122
Stock corporations (‘societa per azioni') can opt for either a one-tier or two-tier board structure 122
Directors' civil liability cannot generally be restricted or limited through contractual agreements 122
Minority shareholders can bring an action against the directors on behalf of the company 123
Shareholder class actions introduced in 2007 have not had a major impact on the DandO market 123
Number of insurable entities 123
The number of publicly listed firms in Italy moved up quite substantially between 2010 and 2014… 123
… but the much higher number of large unlisted companies significantly less so 123
Market value, growth and segmentation 124
DandO insurance is becoming an increasingly important component of the general liability sector… 124
. driven by higher awareness of liability risks among Italian managers 125
Many smaller DandO accounts are perceived to be exposed to insolvency-related risks 125
Unlisted corporate enterprises account for a majority of the market value, albeit a narrow one… 125
… and financial institutions for a sizeable proportion of the total 126
Overseas underwriting capacity is quite important to the Italian DandO insurance market 129
Penetration levels 129
There is substantial scope to increase penetration rates, even among listed companies 129
Underwriter market shares and specialisms 130
The great majority of brokers work with AIG, ACE and Chubb on a regular basis for DandO insurance… 130
… although these competitors are not all in the top three by market share 131
Zurich benefits from its strong position in the wider commercial lines market in Italy 132
Considered as a single entity, Lloyd's of London is probably ranked sixth in the Italian DandO market 133
Key brokers and broker specialisms 133
Brokers are dominant as distributors although there is some competition from other channels 133
A number of indigenous brokers are important in the SME market… 133
… and wholesale brokers (such as AEC Master Broker) are also significant in this arena 133
Trends in claims and key risks 133
Claims frequency has risen in recent years, in part as a result of insolvencies among SMEs… 133
… and some financial institutions continue to cause concern 134
Defence costs account for close to two thirds of all DandO claims paid out in Italy 135
Future outlook 135
Growth in DandO insurance premiums will easily exceed that of the wider commercial lines market in Italy… 135
… even if premium rates remain broadly stable for the majority of non-financial accounts 135
Introduction 137
Regulatory background 137
A two-tier board structure is mandatory for larger stock corporations 137
In the case of insolvency, liquidators have the right to sue directors 138
Number of insurable entities 138
The core target audience for DandO cover shrunk by around 600 enterprises between 2010 and 2014… 138
Market value, growth and segmentation 139
… although this did not prevent the market value from posting reasonable growth… 139
. causing it to comfortably outpace the wider market for general liability insurance 140
The value of the Dutch market splits quite evenly between listed and unlisted enterprises… 140
… and the split by business sector is not untypical of that seen elsewhere in Europe 141
A fairly substantial proportion of DandO insurance cover is underwritten outside of the Netherlands 144
Penetration levels 144
There is very limited scope to increase penetration rates among listed enterprises… 144
… but much more among larger unlisted ones 145
Underwriter market shares and specialisms 145
Three underwriters of DandO insurance are used on a regular basis by over a half of brokers… 145
… although these are not the top three when ranked by market share 146
The two largest players both offer EUR 25 million in capacity in the primary segment 147
Chubb is especially strong among smaller and medium-sized enterprises… 148
… and Markel is also targeting this audience with simplified lower-cost policies 148
Key brokers and broker specialisms 148
Major banks are more important as distributors of DandO cover than elsewhere in Europe… 148
… although brokers are dominant overall 148
Trends in claims and key risks 148
While claims activity has risen, DandO insurance has remained a profitable activity in aggregate 148
The construction sector has seen an increase in insolvency-related claims which may have peaked 149
Large financial institutions are thought to be well-protected from possible future external shocks 149
Future outlook 150
Real terms market value growth of 1.9% is predicted from 2014 to 2018… 150
… although the number of policies issued may rise more rapidly 150
9.0 SPAIN 152
Introduction 152
Regulatory background 152
Stock corporations are characterised by a unitary board system but are typically divided into committees 152
Shareholders representing 5% of the share capital can sue directors on behalf of the company… 152
… although shareholder action is not the only way to start legal proceedings against directors 153
DandO insurance falls under the relevant provisions of the 'Ley de Contrato de Seguros' 153
Number of insurable entities 153
Recession has caused a contraction in the number of insurable entities in Spain… 153
Market value, growth and segmentation 154
… but the market value has achieved rapid growth since 2010… 154
. easily outpacing the economy as a whole and the wider mark

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