Markel’s Kryszon: Industry “one to two quarters away” from D&O inflection point

Guenter Kryszon, chief underwriting officer at Markel Specialty, told The Insurer TV that D&O rates must stop falling as the industry faces increasing losses.

Commenting on dynamics in the D&O market, Kryszon said: “We are getting to an inflection point.”

His comments come at a time when rates have continued to decline since 2021, with Aon's D&O pricing index estimating that as of Q4 2023 there had been six consecutive quarters of rate decreases in the space.

Woodruff Sawyer also noted that public D&O insurance rates declined by 21 percent for mature companies and 45 percent for recently IPO'd companies in 2022 alone.

Kryszon attributed the primary cause of these rate reductions to an influx of capacity from new market participants. As he explained, there have been 21 new entrants to the space since 2020.

Kryszon underscored that this downward pressure on rate was accompanied by mounting losses, largely due to an increase in securities class action lawsuits.

“Securities class action suits have been elevated in 2022 and 2023,” said Kryszon.

Given historically low rates juxtaposed with escalating losses, Kryszon anticipated an inevitable rate adjustment in the industry.

“With rates being depressed, and the average loss ratio starting to increase, that chasm has to be met somewhere.”

“I think we're likely a quarter or two away from seeing [a change in D&O rates]. But that's ultimately where that market needs to move,” he remarked.

Kryszon added that class action cases were being worsened by the deteriorating litigation landscape in the US, characterised by insurers paying out larger settlements with higher frequency. Kryszon viewed this trend as symptomatic of the larger trend in social inflation impacting the entire casualty space.

Kryszon noted PFAS, auto liability and social inflation as key themes in the casualty market.

“In a five-year window from 2014 to 2019 we had five times the amount of $20mn-plus verdicts that we saw within 2009 to 2013… We're definitely seeing an increase in the overall severity,” said Kryszon.

Severe convective storms: the new hurricanes

Regarding severe convective storms (SCS), Kryszon highlighted a concerning trend whereby storms are becoming the new drivers of catastrophic losses, surpassing hurricanes in recent years.

“We saw a fair amount of catastrophe activity within 2023 relative to convective storms, amounting to $60bn of loss.”

He noted that this was not a new pattern, as over the last few decades SCS events had actually resulted in larger losses than hurricanes.

“If you look at the past several decades, convective storm activity on an annualised basis has actually been a bigger driver of cat losses than hurricanes,” said Kryszon.

So while 2023 seemed quiet in terms of hurricanes, Kryszon cautioned against solely relying on this metric to gauge a quiet year for natural catastrophes.

“2023 was a fairly benign year relative to the headline events that we normally are focused on in terms of the magnitude of any single event. Although we'd like to focus mostly on those big headline events, convective storm activity has been a big driver of loss,” he added.

Watch the full interview to hear more about:

  • How Markel are monitoring PFAS;
  • The large commercial auto liability losses that the industry is experiencing right now;
  • How underwriting results are improving due to changes in attachment points