AM Best Sees Warning Signs in US D&O Liability Market

US directors and officers (D&O) liability insurance remained profitable in 2025, but AM Best said several indicators suggest underwriting performance could face increasing pressure in the near term.

According to AM Best's new Best's Market Segment Report, US D&O Liability—Still Profitable But Warning Signs Are Evident, direct premium generated from US D&O liability coverage declined for a fourth consecutive year in 2025. The report attributes the decline largely to heightened competition and excess market capacity, which have continued to put downward pressure on rates.

The report found that the segment's 2025 direct loss ratio increased by 5 percentage points compared with the previous year. AM Best said the increase may indicate that claim costs and related expenses are beginning to outpace premiums on an individual account basis.

"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, AM Best.

AM Best also pointed to reserve inadequacies for the 2023 and 2024 accident years that emerged in 2025. The report said these reserve concerns warrant attention because they may signal broader underlying weaknesses in the business.

Market conditions have also contributed to the changing outlook. Slower capital markets activity in recent years has reduced new business opportunities for D&O insurers, while excess capacity has intensified competition. At the same time, risk profiles continue to evolve amid geopolitical and economic uncertainty, technology-related challenges, and increasing regulatory scrutiny.

The report added that favorable underwriting margins could erode as claims remain open longer, reflecting the effects of social inflation.

Direct premium written by monoline D&O companies reached nearly $15 billion in 2021 but has declined over the past 4 years to slightly more than $10 billion, according to AM Best. While reduced demand for transactional coverage has contributed to the decline, the report noted signs of renewed demand in 2025 through an increase in initial public offerings.

"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, AM Best.

The report also highlighted concerns surrounding open claims in the other liability—claims made line. AM Best said the current level of open claims for the 2023 and 2024 accident years resembles patterns seen later in the previous decade, a period that produced poor results and significant adverse reserve development.

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