Insurers reshuffle, pull back from their private equity liability portfolios as claims rise

As the financial lines market contends with claims involving private equity transactions and increasingly broad general partnership liability wording, some carriers are pulling back while others take a harder look at their exposure, according to Westfield Specialty head of financial lines Ray Ash, speaking to The Insurer at the WSIA Annual Marketplace in San Diego. Ash said some carriers have significantly reduced their participation in the market, though those withdrawals have not yet produced a material change in overall capacity. He declined to name the insurers involved and said the pullbacks do not necessarily amount to full market exits.

Insurers are assessing whether additional premium adequately compensates them for the exposures they are assuming, or whether adjustments to limits and attachment points are needed. Ash said that GPL wording has expanded over the past two decades to cover exposures not traditionally contemplated under the coverage, including international disputes and claims resembling representations and warranties exposures. "It's starting to shift a little bit," he said.

Pricing pressure has been most evident among larger private equity firms. Vincent Cisternino, head of Westfield Specialty's wholesale financial lines, said private equity risks are seeing rate increases even as the broader private-company D&O market remains competitive, while financial institutions liability rates have generally ranged from flat to modest increases. Westfield itself completed a comprehensive review of its private equity portfolio earlier this year, identifying accounts requiring changes to pricing, attachment points or deployed limits, and communicated potential changes to brokers 90 to 120 days in advance. GPL accounted for approximately 15% of Westfield Specialty's financial institutions portfolio, down from 40% two years ago; Ash said this reflected growth elsewhere in the book rather than a contraction of its GPL business.

A key claim driver is disputes arising from public-to-private transactions, particularly where private equity firms hold significant ownership and board representation in companies being taken private. Such situations can give rise to allegations of self-dealing or preferential treatment, even where independent committees have reviewed and approved deals. Insurers are also examining exposures from private equity portfolio companies, including potential litigation involving businesses in which those firms invest. Ash said Westfield remains committed to writing GPL business but is prioritizing risk selection and disciplined capacity deployment over premium growth, with the aim that each product line generates an underwriting profit.