AM Best: Outlook for US D&O Revised to Stable

Why It Matters

The upgraded outlook signals a market moving toward pricing stability, prompting insurers to focus on risk selection while highlighting emerging cyber and AI threats that could reshape D&O liability costs.

Key Takeaways

• AM Best upgrades US D&O outlook to stable from negative.
• Pricing flattening; low‑mid‑digit rate cuts expected for the 2026.
• Loss ratios remain low despite slight uptick, keeping segment profitable.
• Underwriters focus on risk selection over premium competition.
• Emerging cyber and AI risks could pressure claim severity and litigation.

Summary

AM Best announced a revision of its outlook for the United States directors and officers (D&O) liability market, moving the rating from negative to stable. The change reflects a broader market shift after a period of aggressive pricing and deep discounts that began in early 2020 and intensified through 2022.

Analysts highlighted that rate cuts, which once ran in double‑digit percentages, have flattened and are now expected to settle in the low‑mid‑digit range through 2026. Loss ratios, while slightly higher in 2025, remain near historic lows—the lowest in decades—keeping the segment comfortably profitable. Underwriters are increasingly emphasizing disciplined risk selection over premium hunting, and capacity remains ample despite modest new entrant pressure.

Elizabeth Blamble cited a 2025 first‑half average settlement of $56 million—about $12 million higher than the same period in 2024 after inflation adjustment—as a warning sign of rising claim severity. She also warned that cyber threats, ransomware, deep‑fake videos, and the expanding use of artificial intelligence in underwriting introduce emerging risks that could drive litigation and affect insurer profitability.

For insurers, the stable outlook signals an opportunity to recalibrate pricing strategies, tighten underwriting criteria, and invest in analytics to manage cyber and AI exposures. Policyholders should anticipate steadier premiums but must remain vigilant about disclosure and governance to avoid costly investor lawsuits.

Original Description

The revision from negative to stable for the directors and officers liability insurance segment is owed to rate stabilization, low loss ratios, tighter underwriting, and reduced regulatory scrutiny, according to a new Best's Market Segment Report discussed by AM Best Elizabeth Blamble, senior financial analyst, AM Best.