AM Best has announced it is revising its market segment outlook for the US directors and officers (D&O) liability insurance segment to stable from negative, citing rate stabilisation and improving loss ratios, among other factors.
The upgrade signals a critical moment for a sector that has faced years of volatility, declining premiums, and heightening regulatory pressures.
According to the new Best’s Market Segment Report, “US Directors and Officers Liability Insurance,” this stabilisation has been driven by low loss ratios, tighter underwriting, and reduced regulatory scrutiny.
The transition to a stable outlook is underpinned by several converging factors that have improved the underwriting environment.
“After years of premium decreases, declining security class action lawsuit filings as the annual number of initial public offerings (IPOs) and special purpose acquisition companies (SPACs) has lessened, in addition to abundant capacity attributable to new market entrants, rate decreases have moderated, with many renewals shifting to flat or modest adjustments,” AM Best states.
Noting: “Additionally, D&O carriers have maintained favorable loss ratios, with the direct incurred loss ratio for 2024 being one of the best results seen in over a decade. Based on results through the first nine months of 2025, AM Best anticipates modest deterioration in that loss ratio for the full calendar year.”
The report indicates that D&O insurance carriers are exercising greater caution regarding the risks they underwrite.
Consequently, underwriters are now dedicating more attention to evaluating the financial stability and governance practices of companies they are considering for coverage.
Elizabeth Blamble, senior financial analyst, AM Best, said: “This cautious approach likely will result in heightened pressure for rate corrections, especially within the excess layers. Marginal shifts in the loss ratio and annualized direct premiums also suggest a potential tightening of margins that bears watching over the next few months.
“What is unknown is how newer D&O underwriters seeking to grow market share will react to established carriers being more selective and conservative with their pricing.”
According to the report, underwriters are becoming more concerned that pricing in excess layers may be falling below the minimum rate per million required for technical adequacy.
Moreover, claims severity remains high, despite a decrease in frequency. “Mega-settlements” continue to be a primary concern, influenced by social inflation and the prevalence of third-party litigation funding.
In addition, changes in technology, including artificial intelligence, and the rise of cyber incidents, along with geopolitical, economic and environmental factors are transforming the market and present risks to D&O writers.
