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June 2016 Hedge Fund D&O Insurance Market Update

Jun 28, 2016 10:01:47 PM ,

loudagostino

The management and professional liability insurance marketplace for both existing fund managers and emerging managers has softened significantly over the past 12 months. Both pricing and coverage terms are the most competitive they've been in over a decade with insureds experiencing rate decreases coupled with broadened coverage.

While this is due to a number of factors, the main reason can be attributable to the influx of new insurance companies with a specific interest in the financial services industry. There are currently over 20 (twenty) insurance companies currently underwriting to financial institutions. As such, underwriting capacity and available limits have increased dramatically which in turn has caused a reduction in premium rates.

What are we seeing?

  • Lower self-insured retentions;
  • 5-15% decreases in premium for established firms with little to no change in operating exposure; &
  • Rate per million of coverage $11-$15k (1st million);

Broader coverage terms and conditions including but not limited to:

  • Broadened claims triggers;
  • Cost of Corrections/Trade Error Coverage which provides coverage for the costs of correcting trade errors prior to them becoming a claim by a third party.; Traditionally, this coverage carried an additional premium of 10% and 2-3x the standard policy deductible. In 2016, carriers have been adding this coverage to policies for no additional premium with standard policy deductibles;
  • Pre-Claim Coverage which provides retroactive look-back coverage for costs incurred in the defense of a noticed matter that are incurred on or after the date you notify the carrier, but before coverage is triggered under the policy;
  • Written requests for documents by a governmental or regulatory agency; &
  • Investigations Coverage/Interview Costs Coverage for C-suite executives for formal or informal interview requests from an enforcement body.

Further with the ever-increasing Cyber/Data Security risk facing the alternative asset management community, additional Cyber Insurance Options have come available. Options include a fidelity bond cyber extension, D&O/E&O policy cyber extensions and as well as more competitive and comprehensive stand-alone options from some of the major financial service underwriters.

Absent of any catastrophic events impacting the investment community, we anticipate this trend will continue throughout 2016 and into 2017.

Tags: Hedge Funds, insurance, Iron Cove Posts, directors and officers, D&O, Errors and Omissions, hedge funds, Insurance Industry News, Lawsuits, Liability, Litigation, protection, regulatory coverage, SEC

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