As private equity firms across North America fight to maintain the health of their portfolio of companies amid the COVID-19 pandemic, the firms face another threat to their wellness – scrutiny from shareholders and investors. 

Recent high-profile lawsuits filed against Carnival Corporation and Sorrento Therapeutics, for example, accused company leaders of making misleading statements about a cure and health and safety protocol, concealing the severity of infections of travelers and even facilitating transmission of the virus.[1]

These cases and more are riling up the Directors and Officers (D&O) insurance market, which was already headed toward a market correction due to extreme losses in recent years. As a result, D&O policy rates are increasing. Depending on the location and company risk profile, increases of 10 to 35 percent are common, while self-insuring retentions are on the rise as well. Policy limits are also being reduced. Underwriters that used to write $10M to $15M policies are now capping out at $5M, for example.

Directors and Officers (D&O) coverage is retained by private equity firms to protect directors and officers and other employees for the decisions they make on behalf of the business. Should they be sued, the company’s D&O policy will indemnify them, protecting their personal assets.

Private equity firms looking to minimize the hard market’s impact on their D&O policies will want to follow these 5 key best practices:

  1. Spend more time discussing your portfolio with underwriters. Private equity firms will want underwriters to be confident they are a good risk. The best way to inspire confidence is by getting the firm’s senior and managing partners involved in the process. Underwriters want to engage with senior managers that can speak to the firm’s historical performance and estimated future projection.
  2. Be prepared for premium rates to go up. D&O premium rates are going up for all firms, regardless of the risk type. Adjust your insurance budget accordingly so you know what to expect year after year. Make sure you’re working with brokers that can provide an accurate estimate, not just one that wants to earn your business. Know that private equity firms that had previously negotiated bulk D&O rates or General Partnership Liability policies for their portfolio of companies will also have their ability to renew coverages across their portfolio affected by this market shift.
  3. Get out in front of your renewal. While 60 or 90 days were previously enough to get ahead of renewals, we now recommend gathering info and touching base with the underwriters 120 days out. Underwriters are now asking more qualifying questions, even for coverage renewals. These include: What is your plan for post-COVID-19 return to work? What is your business doing to mitigate the potential effects of COVID-19?
  4. Be prepared to talk about any non-traditional or failed investments and toot your horn on successes. Be able to clearly articulate corrective measures moving forward. Similarly, if a firm or portfolio business is looking to raise capital, be prepared to discuss how it is going. If there’s succession planning going on, be able to articulate that as well.
  5. Stay on top of regulatory requirements. In addition to following regulations at the portfolio company level, private equity firm oversight must be maintained as well. These include COVID-19 return to work protocols, collection of health information and more.


Contact your HUB Financial Institution expert for more information on optimizing your D&O renewal.