US directors and officers liability insurance continued to produce profitable results in 2025, yet the segment showed clearer signs of strain as premium reductions extended into a fourth consecutive year. AM Best said the ongoing decline reflects intense market competition, even as broader underwriting conditions in commercial lines begin to show early warning signals.
The rating agency reported that the direct loss ratio rose by five percentage points in 2025 from the prior year. That shift suggests claim severity and associated expenses may be increasing faster than premium growth at the account level, creating pressure beneath the surface of an otherwise profitable market.
Pressure Points Emerging Beneath Profitable Results
AM Best also pointed to reserve weakness tied to the 2023 and 2024 accident years, noting that those reserve levels proved inadequate in 2025. This development may signal a deeper deficiency in the segment, with the potential to weaken D&O underwriting performance in the near future.
According to David Blades, associate director at AM Best, the reserve trend could be an early indication that results are beginning to soften. At the same time, insurers have faced fewer opportunities for new business because capital markets activity has remained subdued, limiting growth while leaving too much capacity in the market and continuing to push rates downward.
Competitive Conditions and Evolving Risks
AM Best said the D&O market is also being tested by a more complex risk environment. Geopolitical tensions, economic uncertainty, rapid technological change, and strict regulatory scrutiny are all contributing to a more difficult operating backdrop for insurers.
These challenges are compounded by social inflation, which has prolonged the lifespan of open claims and increased the likelihood that underwriting margins will narrow over time. The segment remains profitable, but its cushion appears to be thinning.
Premium Volume Has Fallen Sharply Since the 2021 Peak
Over the past decade, direct premium written across monoline D&O insurers climbed to nearly $15 billion in 2021. Since then, that figure has declined for four straight years, falling to just above $10 billion. The drop has been driven in part by weaker demand, especially for transactional coverage, although 2025 showed some renewed activity through an increase in initial public offerings.
Christopher Graham, senior industry analyst at AM Best, said that although direct underwriting performance has remained solid in recent years, the highly competitive marketplace is likely to tighten in 2026. In that environment, underwriting margins are expected to shrink further.
AM Best added that the volume of outstanding claims in the claims-made liability segment remains a notable concern. The current level of open claims for the 2023 and 2024 accident years resembles patterns seen in the latter part of the previous decade, a period that later produced poor underwriting outcomes and meaningful adverse reserve development.
