How a Changing D&O Environment May Signal Tighter Conditions

• By: Olivia Overman
• September 21, 2026

AM Best’s June 2026 report highlights the continued profitability of the U.S. directors & officers market, but cautions that there are warning signs that the market may be tightening.

“The current profitability of the D&O market is largely a reflection of prior underwriting actions—namely rate increases, improved attachment points and tightened terms implemented during the hard market,” says Lauren Engnell, director, management liability at Intact Insurance Specialty Solutions. “However, there are several factors that could signal a potential shift toward tightening conditions.”

Over the past year, the market has undergone a notable shift, fueled largely by a resurgence in capital markets activity and deteriorating loss experience. One of the most significant changes in the past year has been the increase in the number of initial public offerings (IPO) and special purpose acquisition company (SPAC) offerings, according to an EY report.

“The markets had a brief hiatus when there was a very limited number of IPO and SPAC offerings, which limited the amount of new business available to underwriters in the market,” says Jim Rizzo, product leader, U.S. D&O, executive risk, Beazley. “Seeing a return of that activity has certainly been helpful for underwriters because it offers us more business to compete for.”

However, in mid-2026, there was “one mega IPO: SpaceX’s debut on June 11,” says Ryan Canning, senior vice president, U.S. head of management liability at Westfield Specialty. “There has been a lot of discussion amongst the underwriting community about whether that will boost the capital markets in the back half of the year, or if that effectively takes so much institutional money off the table that things will continue to remain muted.”

Further, volatility in the number of securities class action (SCA) lawsuits continues to impact companies. “In the first six months of 2026, we had 118 SCA claims, which puts us at an annual pace of 236 claims, above the 227 average,” Rizzo says. “We’re also seeing claims from earlier years that finally developed—this is one of those interesting products where we don’t really know our cost of goods sold for three to five years.”

Impacting the market even further is that “the median SCA settlement in 2025 was $17.3 million, which was a 20% increase year over year and was also a decade high,” Canning says. “The other topic du jour on everyone’s mind—what could be driving some of that frequency this year—is artificial intelligence (AI) related cases.”

“In the first half of 2026, we’ve seen 13 federal securities class-action lawsuits that are AI-related,” Canning says, which is on track to nearly double the 14 from all of 2025.

Claim severity is another concern for the market due to the “ongoing pressure from economic, regulatory and social inflation factors,” says Stephanie Waldron, chief underwriting officer at K&K. “The cost of settlements and defense continues to rise as social inflation, increased plaintiff sophistication and a more active regulatory environment all contribute to this trend.”

“Macroeconomic uncertainty should be taken into account as well,” Waldron says. “Interest rates, inflation and potential recessionary pressure can all certainly increase bankruptcy risk and trigger more D&O claims, with financially stressed companies historically more susceptible to litigation.”

When it comes to public companies and D&O claims, “the inventory for 2025 and so far in 2026 follow historical trends with claims concentrated in technology, life sciences and manufacturing,” Canning says. “The drivers of those claims are also following historic norms, such as missed revenue expectations, poor clinical data in life sciences and alleged misleading statements on operations or products. AI remains the greatest unknown.”

“For private companies, insolvency and underwriting to liquidity levels have become a prime focus for underwriters,” Canning continues. “Corporate Chapter 11 filings increased for the fourth year in a row in 2025 and hit a decade-long high—that’s concentrated in real estate, in consumer goods, energy and industrials, with the drivers being higher input costs, tariffs and trade disruption.”

While ample underwriting capacity remains available and capital markets activity is creating new opportunities, insurers are increasing rates to correct for years of underpricing and to address the long-term cost of emerging claims, according to the WTW “Insurance Marketplace Realities 2026—Directors & Officers Liability” report.

“For well-performing insureds, ample capacity often translates into the ability to build larger towers and negotiate improved terms and coverage language,” Engnell says. “However, capacity is not uniform across all segments, as higher-risk industries, such as biotech, fintech and distressed sectors, may experience more cautious capacity deployment, which may require more layering and participation from multiple carriers.”

Olivia Overman is IA content editor.