Priced for a Bottom: D&O Underwriters Hold the Line as Severity Climbs

Securities class action filings fell to 188 in 2025 from 211 the year before, and directors-and-officers premiums kept drifting down, with average decreases smaller than in either of the two prior renewal cycles and most 2026 renewals now expected to land flat. Read quickly, that looks like a market settling into equilibrium after a long correction. Read against the claims data it is less comfortable: the median securities class action settlement reached $15.48 million in 2025, above the $12.25 million average of the four years before it, so the price of the cover is flattening at exactly the moment the cost of the thing it covers is still climbing. The 2026 D&O pricing question lives entirely in that divergence, and it is sharpest in the excess layers where a single large settlement does the most damage.

188

Securities class action filings in 2025, down from 211 in 2024, so frequency is easing even as severity rises.

$15.48M

Median 2025 securities settlement, up from a $12.25M average across the prior four years.

~2%

Approximate average D&O rate decrease in 2025, with 2026 renewals expected to come in flat.

A Soft Cycle Reaches Its Floor

The D&O market has spent roughly four years giving back the extraordinary rate increases of 2019 through 2021, when securities litigation, event-driven claims, and a wave of special-purpose acquisition company formations pushed primary public-company rates up by double digits for several consecutive renewals. That correction has run its course. Carriers reported average premium decreases in 2025 that were smaller than in either of the two preceding cycles, somewhere around two percent or less for many public-company buyers, and the consensus across the 2026 outlooks from Baldwin, WTW, Howden, and Ryan Specialty is that most renewals will trend to flat, with meaningful decreases now reserved for the cleanest risks rather than handed out across the book. The signal underwriters are sending is that they intend to stop the slide.

What kept the soft market soft for so long was capacity, not loss experience. New entrants, including several insurtech-backed managing general agents and Lloyd's syndicates, added supply faster than demand grew, and a slow capital-markets environment did the rest. Fewer initial public offerings and almost no SPAC activity meant fewer newly public companies buying first-time towers, so an expanded pool of capacity chased a flat or shrinking pool of exposure. That is the textbook setup for a buyer's market, and it persisted well past the point where loss trends justified the price cuts. The market is bottoming now because underwriters have concluded that another round of reductions would price the product below the cost of the claims it is starting to see, not because capacity has left the field.

The Frequency-Severity Divergence in a Long-Tail Line

D&O is a long-tail, severity-driven line, and that combination is what makes the current data so awkward to price. A securities class action filed today may not settle for three to five years, and the loss that matters is not the count of suits but the size of the few that resolve against a large award. So a year like 2025, with filings down to 188 from 211 but the median settlement up to $15.48 million, is not the reassuring picture a falling frequency count suggests in a short-tail line. Frequency eased while the severity distribution shifted right, and in a line where a handful of large settlements drive the loss ratio, the severity move is the one that flows into the indicated rate.

The pricing temptation in a soft market is to follow the frequency count and the competitor quote rather than the severity trend, because the severity has not yet emerged as paid loss in the current accident years. An actuary setting the 2026 rate is working from development patterns built on settlements that closed under an older severity regime, and the standard loss development factor applied to immature accident years will understate the ultimate if the settlement distribution is still moving. This is the same non-stationary severity problem that has reshaped commercial casualty pricing, and it argues for treating the rate indication as a floor to defend rather than a number to discount away in pursuit of the renewal.

Holding the Increased Limits Factor in the Excess Tower

Primary D&O pricing gets the headlines, but the harder actuarial judgment sits in the excess tower. Excess layers are priced as a fraction of the primary rate through increased limits factors, and in a soft market the pressure to compress those factors is intense because every layer wants to write the business and the primary carrier has already set a low anchor. The problem is that the excess layer is precisely where a rising severity distribution does its damage. A settlement that climbs from twelve to twenty million dollars may barely touch a primary layer that was always going to pay its limit, but it can pierce a high excess attachment that the historical experience said would almost never be reached.

Holding increased limits factors firm while primary rates fall is the discipline the 2026 outlooks describe as underwriters tightening in the middle and upper layers even as they let primary drift. For the pricing actuary, the defensible position is to resist mechanically scaling the excess rate down with the primary, and instead to reprice the tail of the severity distribution directly, asking how often the larger settlements now being observed would attach at each layer. An excess layer priced off a stale increased limits curve is the cleanest way to write a loss that does not show up until the layer has already been on risk for several years.

A Shrinking Exposure Base Against Growing Litigation

The capital-markets slowdown that fed the soft market has a second-order effect that complicates the rate. D&O exposure scales with corporate activity: new public companies, mergers, capital raises, and the disclosure events that generate claims. With initial public offerings thin and SPAC activity collapsed, the exposure base that carriers rate against has stopped growing, even as the litigation environment has not. Plaintiffs' firms have not run short of theories, and several newer ones are expanding the universe of what gets sued. Disclosures around artificial intelligence capabilities, cybersecurity incidents, and environmental claims are all generating securities suits and derivative actions that did not exist as a category a few years ago, and each adds to the severity tail without adding premium-bearing exposure.

For the actuary that means the denominator and the numerator are moving in opposite directions. A premium base that is flat to shrinking has to absorb a severity trend that is rising and a set of emerging claim types whose ultimate cost is genuinely uncertain. Pricing the AI-disclosure or cyber-driven securities suit is not a matter of trending an existing triangle, because the triangle barely contains these claims yet. It is closer to the a priori loading problem that workers compensation faces with new statutory presumptions: the actuary has to build a forward estimate from the emerging pattern rather than wait for the development to confirm it, knowing the load will look conservative until the claims arrive.

Pricing Through the Trough

The cycle-management lesson D&O keeps relearning is that soft-market pricing seeds the next reserve problem. Rates written at the bottom of the cycle attach to accident years that will not develop for years, and if the severity trend that is visible now continues, those years will develop adversely against premiums set when underwriters were still competing on price. Several casualty writers have already taken reserve charges on the 2021 through 2024 accident years for exactly this reason, and D&O sits in the same long-tail category. The discipline of pricing through the trough is not about predicting the exact turn; it is about refusing to write the marginal account at a rate the severity data already contradicts, and about carrying the reserve at the indicated ultimate rather than the optimistic one.

The read-across to the rest of the management-liability suite reinforces the point. Employment practices liability and fiduciary lines share the same soft-market capacity dynamics and the same exposure to a litigation environment that is not softening with the rates. An actuary who has built an explicit, severity-anchored view of the D&O excess layer can apply the same logic across the management-liability book rather than treating each line as a separate negotiation. The market has reached its floor on price. Whether it has reached the floor on loss is a different question, and the carriers that price as though the answer is no will be the ones holding adequate reserves when the current accident years finally develop.