Directors & Officers (D&O) Liability saw its best calendar year (CY) loss ratio in over a decade at 49% for CY 2024, despite three years of declining direct written premiums (DWP). To make sense of these results, let’s take a look at the insurance cycle and how the D&O market has ebbed and flowed with it:
- CYs 2016 – 2019: The insurance market was in a soft phase. D&O insurers noted rising claims severity, particularly from securities class actions and event-driven litigation. There is still a disproportionate number of open claims from these years, indicating potential future adverse development.
- CYs 2020–2022: The insurance market entered into a hard market phase with significant price increases and stricter underwriting standards. The rise in D&O rates stemmed from increased securities litigation, pandemic-related bankruptcy concerns, and a surge in initial public offering (IPO) and special-purpose acquisition companies (SPACs) activity.
- CY 2023 to Present: The D&O insurance market is cooling, with prices declining as competition rises — the number of carrier groups participating in the U.S. market increased from 45 in 2019 to 58 in 2024. Securities class action litigation filings fell to around 200 annually in 2021–2024, down from 400+ in 2017–2019. Fewer IPOs and SPACs further drive rate and premium reductions.
While the D&O market as of mid-2025 is still a buyers’ market, signs of a shift are emerging. Premium reductions have started to slow, and macroeconomic pressures such as inflation and geopolitical risk concerns add further complexities to the outlook.
What this means for actuaries:
The foundation of a pricing actuary’s role is setting rates based on anticipated losses and expenses. However, external and competitive forces, such as the insurance underwriting cycle, play a significant role when the price goes to market. As Sholom Feldblum, FCAS, FSA, MAAA, states in his paper, “Underwriting Cycles and Business Strategies,” “actuaries indicate rates, but the market sets prices.”
An interconnected relationship exists between pricing strategy and the underwriting cycle, and the strength of this relationship depends on the line of business. Lines such as personal auto and homeowners are less responsive to the fluctuations of the underwriting cycle due to factors such as regulatory oversight and inelastic demand. Conversely, commercial and specialty lines, such as D&O, are more susceptible to swings in the cycle due to sensitivity to macroeconomic conditions and market competition.
Actuaries who understand the underwriting cycle can serve as valuable business partners to their companies. When looking at historical results through the lens of the underwriting cycle, patterns and trends can be uncovered that show how a particular line of business responds in each part of the cycle. This in turn can help guide actuaries and their business partners in deciding how much rate to take in the future, and when.
Sources:
- https://riskandinsurance.com/do-insurance-market-sees-best-loss-ratio-in-over-a-decade-despite-premium-decline/.
- https://www.ambest.com/video/Video.aspx.
- https://www.casact.org/sites/default/files/database/forum_90spforum_90sp063.pdf.
- https://www.mynewmarkets.com/articles/184504/soft-do-market-may-come-to-an-end-as-risk-complexities-rise.
