By Nicky Stokes, Head of Management Liability and Financial Institutions at New Dawn Risk
In what has been the most unpredictable year ever, the road for D&O and other management liability classes has been particularly bumpy. In summer 2020 many in our industry had hoped that by the end of the year life would have been returning to ‘normal’, with the main concern being the ongoing hard market, driven by years of insufficient rates, under-reserving and inadequate retentions.
But Covid-19 was having none of that. The virus bit back, and a second wave wreaked even more social and economic havoc, leaving a swathe of companies financially weakened, with many still trading under significant restrictions.
With a Covid-19 vaccine finally here, we predict an economic boom in the US – private-sector capital-raising is already at unprecedented levels. We are seeing an increase in the number of SPACs* or ‘blank cheque’ companies popping up; it feels like anyone and everyone is looking to raise funds. This will almost certainly lead to bad deals being done in a rush to market.
With rushed deals comes a very high chance of failure, inevitably leading to D&O claims. This could extend the hard market cycle for a further 24 months. We predict tough times ahead for clients and brokers who buy D&O in 2021.
*Special Purpose Acquisition Company – this is a listed vehicle that is pre-funded by backers and set up ready to acquire a portfolio of businesses that look ripe for investment.