AM Best Warns of 'Warning Signs' in the D&O Market: Loss Ratio Up Five Points to 54.5 and Reserves for 2023 and 2024 Look Short

Directors and officers (D&O) liability insurance, which protects company leaders against claims that they mismanaged a business, has been a comfortable market for buyers. Premiums have fallen for years, capacity has been abundant and insurers have generally been profitable. A new analysis from the rating agency AM Best, reported by Insurance Journal on June 8, 2026, suggests that the good times may be fading. This article summarises that report. An earlier version of this article quoted several figures, including a 2021 premium peak, a 33% decline and a 49.0 prior-year loss ratio, that do not appear in the Insurance Journal article, so they have been removed. The article also contains no figures on expenses, competition or securities class action filings, and none are given here.

The first point is premiums. According to the report, 2025 was the fourth straight year of premium decline in the D&O line. Insurers had favourable direct underwriting results over the last few years, and buyers got competitive renewal terms and new product offerings in a market with abundant capacity. In 2025, premium decreases at renewal were smaller on average, and some accounts saw flat or slightly higher rates. AM Best says the decline in premiums may reflect lower demand, particularly for coverage tied to transactions, because fewer companies went public. The market for initial public offerings rebounded in 2025 but has since levelled off somewhat, which AM Best attributes to economic uncertainty linked to the conflict involving Iran.

The second point is claims. The direct loss ratio, which measures claims as a share of premiums, was 54.5 in 2025, five percentage points higher than in 2024. That is still a profitable number on its own, but the direction matters. More concerning, according to AM Best, is that reserves for accident years 2023 and 2024 turned out to be inadequate in 2025. An accident year groups claims by the year in which the event occurred, and reserves are the funds the insurer sets aside to pay them. If reserves have to be increased later, it means earlier results were better than they should have appeared, a pattern known as adverse development.

The report also notes that claims for accident years 2023 and 2024 are closing more slowly than for 2018 and 2019. Those two earlier years, AM Best says, caused adverse development in the last decade. Slower closure means claims stay open longer, and AM Best warns that it could erode profit margins as the eventual cost becomes clearer. D&O is a long-tail line: lawsuits can take years to resolve, so the full cost of a year's business is not known for a long time. That is why an insurer can report strong results for years and then face a reversal.

David Blades, an associate director at AM Best, described these as warning signs that might indicate an underlying deficiency that could lead to a downturn in D&O liability underwriting results in the near term. AM Best expects shrinking underwriting margins and a tighter environment for buyers in 2026. It also notes insurers' discipline on policy terms and conditions, and says insurers will need to conduct expert due diligence in choosing which industries and segments to write.

What are the headwinds? AM Best lists geopolitical and economic uncertainty, technology, and regulatory scrutiny. It says corporate leaders face criticism over how they handled trade policy, supply chains, overseas conflicts, changes to financial reporting, cyber risk and regulatory shifts such as those on environmental, social and diversity policies. Artificial intelligence adds disclosure and oversight risks. Some companies may struggle to link their AI investments to returns, which can lead to shareholder claims that statements about AI were misleading. AM Best says disclosure management will be vital to successful AI use in any industry.

What does it mean for buyers? A firmer market means that companies renewing D&O cover could see smaller premium reductions, flat renewals or increases, and tighter terms, depending on their industry, financial health and claims history. Companies should start renewal discussions early, prepare clear information about governance and AI-related disclosures, and compare options across markets. Boards should also review the limits they hold, and whether separate Side A cover for personal protection when the company cannot indemnify them is adequate.

What does it mean for insurers? The report is a reminder that profitable years may be overstated if reserves are not strong enough. Insurers that cut prices to win business in a competitive market could find that the cost of past years emerges later. The reaction of the market will depend on how reserves develop and on whether new entrants hold to underwriting discipline.

This summary reflects a rating agency's view of a segment, not a forecast for any specific company. Readers should consult AM Best's own report for the full analysis, and brokers for advice on their coverage.