AM Best Concerned D&O Prices ‘Fell Too Far, Too Quickly’

Insurance industry rating analysts from AM Best warn recent softer pricing for directors and officers coverage could begin to affect insurers’ underwriting results.

AM Best noted renewal premium for monoline D&O liability continued to fall during the first three months of 2025, particularly for companies involved in initial public offerings, special purpose acquisition companies, and de-SPAC companies. For many public companies, significant price decreases of the last several years may begin to reverse.

This may be a good thing, said AM Best, considering adverse development is embedded in prior-year losses and defense and cost containment (DCC) expense reserves.

“Despite recently favorable statutory underwriting results, the softer pricing of the past couple of years could ultimately dampen the financial performance of D&O insurers because the premium base to support future claims activity has diminished, even as risks are emerging and expanding,” AM Best said in a recent commentary.

The number of securities class-action lawsuits in federal and state courts have risen; the impacts of social inflation and third-party litigation financing continue; and lawsuits regarding artificial intelligence (AI) – including “AI washing” – have surfaced.

There are other emerging concerns, such as policy changes with respect to DEI (diversity, equity and inclusion), ESG (environmental, social and governance) and regulations, the rating agency said.

As of the end of the third quarter 2024, direct monoline D&O premium declined for 10 straight quarters following a period in 2020 and 2021 of significant premium increases to address loss trends. Since then, new capacity from new entrants in the market looking for good returns in a high-rate environment, eventually resulted in pricing declines.

AM Best said, “Accident year results over the near term may indicate that premiums fell too far, too quickly.”

The rating agency said it will reassess pricing and loss reserve trends when data from 2024 has been aggregated and analyzed.

Topics Pricing Trends AM Best