A slide in directors’ and officers’ renewal prices dating back two years is likely to moderate as insurers face headwinds, AM Best says.

Quarter-on-quarter declines have been in the double digits and premiums continued to fall for certain types of account early this year, but for many public companies the slide is likely to begin easing, according to the ratings agency.

“Accident-year results over the near term may indicate that premiums fell too far, too quickly,” it says in a report.  

“Despite recently favourable 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.”

Data from US independent brokerage and consulting company Woodruff Sawyer shows a record number of securities class action settlements against US companies in the first half of 2023, and AM Best says the trend continued through the June half last year, with negative implications for future calendar-year profitability.

According to Woodruff Sawyer’s D&O Market Update for this year, most underwriters believe the risks corporate directors and officers face continue to increase, and they are concerned that companies are not fully aware of the frequency and cost of litigation.

AM Best says the impact of potential policy changes around diversity, equity and inclusion, and environmental, social and governance regulations is uncertain, but it may be significant.