Dan Fortin joined QBE North America as president of financial lines in 2020 and was named president of specialty insurance at the insurer last year. Previously, he held senior underwriting roles at Berkshire Hathaway Specialty Insurance Co. and CNA Financial Corp. Mr. Fortin, who is based in Chicago, recently spoke with Business insurance Editor Gavin Souter on the impact of recent bank runs on the directors’ and officers’ liability market and QBE’s specialty risk strategy. Edited excerpts follow.
How will the disruption in the banking sector affect the D&O market for financial institutions?
The insurance industry, and more broadly the banking sector and the wider economy, just dodged a bullet. Had the government and the FDIC not stepped in and stopped these deposits, we could have had a much bigger problem. It increased the focus on underwriting, but I haven̵7;t seen that lead to any significant change in pricing or capacity or terms. When you think about Silicon Valley Bank, there is more focus on concentration risk and, with rising interest rates, concerns about asset and liability imbalances.
The losses to the industry will be concentrated in a handful or less of the banks and the organizations that were affiliated with them. At QBE we took a quick look at our portfolio to simulate contagion to see what the impact would be and we see the impact as quite small.
How would you characterize the D&O market in general?
Competitive, for sure. The listed company segment is the most competitive. You’re dealing with a limited pool of companies, which is more limited because the capital markets really dried up in 2022 relative to 2021. New premium came online related to IPOs, the SPAC frenzy and even de-SPACs, and you had a number insurers that came online with a need to write business, but since that dried up, public companies began experiencing rate cuts much faster than most had estimated.
But I would add that the sharp reductions were largely isolated to high-risk companies that were exposed to really significant premiums in 2021. You’re still looking at, by most insurers’ estimates, pretty adequate premiums even though they dropped from 20% to 10% (price of The net).
If you look at the more traditional D&O market — the Russell 2000 business or the S&P 500 business — those rate cuts are smaller than the higher risk class and I’m not as comfortable with the rate adequacy in that segment because they didn’t. increase by the same amount between 2019 and 2021.
Are you seeing a lot of SPAC related claims?
We fully expected to see a much higher injury rate, just given the nature of the risks. So it’s not surprising that we’re seeing more claims in that area than you would see in the non-SPAC space, but if I take into account the prices that we were paid, I still feel very comfortable that the industry in general got paid for the risk. And because these SPACs only bought $20 million to $30 million of limits, relative to a traditional S&P 500 company buying $200 million to $500 million of limits, the claims won’t have as much impact on the industry overall.
What other areas of specialty risk do you want to expand into?
We have been investing for the past almost a year in the cyber industry. In the US and globally, we have sought to create a consistent approach to how we conduct cyber business and in our offerings to our policyholders and brokers. We expect to accelerate our growth in that area. We’re trying to figure out the whole intellectual property exposure and how we could create some risk transfer products that work for the buyer and the seller, but it’s early days. I see the IP market as similar to what we saw 20 years ago in transactional liability. I could see (IP) business in 10 or 15 years being a $5 to $10 billion market for the insurance industry globally, as reps and underwriting are now.