Premium generated from US directors and officers (D&O) liability coverage declined for a fourth consecutive year in 2025, and while the line remains profitable, a new AM Best report warned that underwriting margins are under increasing pressure and the competitive environment is beginning to show structural cracks.
According to the Best's Market Segment Report, titled, "US D&O Liability — Still Profitable But Warning Signs Are Evident," the 2025 direct loss ratio was five percentage points higher than the prior year, potentially reflecting rising claim costs and associated expenses beginning to outpace premiums on an individual account basis. Of particular concern, the report noted, are reserve levels for the 2023 and 2024 accident years, which proved inadequate in 2025.
"This might indicate an underlying deficiency that could lead to a downturn in D&O liability underwriting results over the near term," said David Blades, associate director at AM Best.
Furthermore, collective direct premium written among monoline D&O companies peaked in 2021 at nearly $15 billion before falling over the following four years to just over $10 billion, according to the report. Slower capital markets activity has limited new business opportunities and created excess capacity, putting sustained downward pressure on rates. Risk profiles have also shifted amid geopolitical and economic uncertainty, complex technology exposures and heightened regulatory scrutiny.
"Despite generating solid direct underwriting results during the past few years, the competitive D&O marketplace is expected to become a little tighter in 2026, with underwriting margins likely to shrink," said Christopher Graham, senior industry analyst at AM Best.
The open claims ratio for the other liability claims-made line is identified in the report as a cause for concern.
The current ratio for accident years 2023 and 2024 mirrors that from the later part of the prior decade, a period that ultimately yielded poor results and significant adverse development. Social inflation is identified as a key driver of margin erosion, with claims remaining open longer and settling at higher values as litigation trends and plaintiff attorney strategies evolve.
Broader litigation data supports that concern. NERA's 2025 full-year review recorded 207 federal securities class actions, with aggregate settlement value falling 25% to $2.9 billion from the inflation-adjusted 2024 total.
However, the median settlement value rose 21% to $17 million, a ten-year high, illustrating the lower-frequency, higher-severity dynamic that makes reserving increasingly difficult. Legal service inflation, which directly impacts loss adjustment expenses, ran at 8.3% in 2024, well above the 2015-2024 average of 4.3%.
A fast-developing risk category is adding further complexity for underwriters. Shareholders have filed 53 AI-related securities class actions through H1 2025, asserting allegations relating to misrepresentations about the role of AI in business operations, according to the WTW.
The SEC has also brought enforcement actions against firms over alleged "AI washing," targeting overstated or misleading claims about AI capabilities.
AI-related securities class actions doubled from 2023 to 2024, and H1 2025 alone produced 12 filings, while average settlement values for D&O claims have risen 27% to approximately $56 million.
The AM Best reported noted that the decline in D&O premiums has been partly attributable to decreased demand for transactional coverage, and that 2025 showed signs of a recovery in demand through higher IPO activity.
In 2025, 202 IPOs were completed in the US, according to Renaissance Capital, significantly more than the annual average of 110 new listings from 2022 through 2024, though still well below the 397 completed in 2021.
With IPO activity showing early signs of recovery, especially in technology, life sciences and consumer brands, D&O underwriters are watching closely. A sustained pickup in listings could gradually add demand back into the market and test current pricing levels, particularly for growth-stage issuers with more volatile business models or complex capital structures.
