July 2022 Market Update – Directors & Officers Liability

D&O rates have stabilised. This may be attributable to the increase in gross written premium for the class. In 2016 the market was $250M. The 2021 market reports that figure to be $1.25B.

There has also been a decline in securities class-action filings that may be put down to steps taken by the Morrison Government, coupled with the judgment in Myer that ultimately portrayed the difficulty in quantifying loss in such actions. A growing number of listed companies are no longer buying cover for the company in relation to securities claims (“Side C”) cover reflecting the increasing shift as a result of premium uplifts. It is expected this will remain for the medium term until premiums become more competitive.

Directors and Officers should heed ASIC’s three general priorities for 2022 being:

Governance failures – directors failing to identify and manage risk and allocate resources to deal with risk.

Cyber governance (see for example, our recent article on ASIC v RI Advice here)

Egregious governance failures or misconduct resulting in corporate collapse.

The key risk concerns of boards include ESG (but the decision in Sharma of March 2022 has somewhat eased concern over this as a significant risk to materialise now); cyber risk and loss of data also feature as well as employment and regulator (particularly work health and safety) claims. However, following the very public recent collapses, boards should be conscious of their financial position and particularly imposition of insolvency exclusions on their D&O policies. Solvency is a key underwriting concern.

There has been much by way of legislative and judicial developments. Most recently, the Full Federal Court held that funded class actions are not managed investment schemes subject to regulatory oversight.

It remains to be seen how the class action landscape will evolve over the next 12 months and whether the new Government seeks to repeal any of the amendments made by the last Government.

We otherwise expect to see more insurers apply territorial exclusion clauses as the conflict between Russia and Ukraine continues.

We have seen new innovative products being prepared by insures for listed companies. In addition, there is the return of insurers particularly to the excess of loss market, attaching as low as $5M.