D&O rate reductions beginning to taper off

After an extended period of declining rates and strong competition, many carriers appear to now have “reduction fatigue.” For mature public companies, rates are trending flat to down 10%. De-SPACs — companies formed via the merger of special purpose acquisition companies (SPACs) and private companies — may be able to secure rate reductions.

Despite the departure of some longstanding carriers, capacity is plentiful. Insurers are still eager to compete, although there is not as much premium pressure on incumbents in the current market. Favorable terms and conditions are generally attainable, but insurers are considering them on an individual risk basis. Insurers are taking varied approaches to entity investigation coverage, in terms of both breadth of coverage and pricing.

Insurers are cautiously optimistic about the SEC and other federal regulators taking a more business-friendly approach under the second Trump administration. On February 10, President Trump signed an executive order directing the Department of Justice to pause investigations and enforcement actions under the Foreign Corrupt Practices Act. While this may reduce regulatory scrutiny, it could also heighten reputational and compliance risks for companies operating globally.

Meanwhile, the administration’s stance on diversity, equity, and inclusion (DEI) could influence board and leadership composition, potentially impacting corporate governance and investment risk. Business leaders also face an increasingly complex environment of competing federal and state regulations, as states where Democrats are in power try to blunt the impact of the Trump administration, particularly around hot-button issues such as DEI and environmental, social, and governance (ESG) investing.

Other cracks are starting to appear. In 2024, 694 public and private companies filed for bankruptcy, the most since 2010, according to S&P Global Market Intelligence. Also in 2024, plaintiffs filed 225 securities class-action lawsuits in federal and state courts, up from 215 in 2023, according to Cornerstone Research and the Stanford Law School Securities Class Action Clearinghouse. AI- and COVID-19-related filings increased, while suits under the Securities Act of 1933 and those related to SPACs, cybersecurity, and digital assets decreased.

Underwriters continue to be cautious of some emerging industries, such as cannabis. Insurers are also more closely scrutinizing companies in financial distress and all public companies’ approaches to cybersecurity and AI.

Although some private and nonprofit D&O buyers can still secure rate reductions at renewal, most carriers have indicated that rates have bottomed out. Good risks are increasingly renewing flat or with slight reductions, typically of 5% or less.

The soft market cycle of the last 12 to 24 months has seen most private and nonprofit buyers achieve material reductions in rate and/or spending, depending on their exposures. Where they can, insurers are trying to hold the line on rate to start 2025. Most healthcare D&O buyers face difficult market conditions.

Capacity is stable. One well-known insurer recently exited the D&O market, but this is not expected to have a material effect on pricing or appetite. Carriers are more aggressive in competing for new business when they see genuine opportunities to win accounts. In these situations, insurers may offer broader coverage, better pricing, or more flexible terms.

However, when an incumbent carrier is strongly positioned to retain a client — due to a longstanding relationship, favorable claims history, or other competitive advantages — other insurers are less likely to compete aggressively. This dynamic creates a more complex renewal environment for insureds looking to negotiate better terms with their current carriers.

Private and nonprofit buyers are closely watching economic trends. Bankruptcy remains a key loss driver for private companies, though claims costs have been lower than expected in the past two years. Heavily levered companies are particularly concerned about the Fed’s decision to pause rate cuts, which could constrain their ability to refinance maturing debt. However, progress in controlling inflation and favorable tax policy could improve profitability for many organizations.

Businesses and insurers are watching the Trump administration’s approach to DEI, which could to lead to more claims, especially for government contractors. These could include claims brought by employees and state and federal regulators alleging company policies and practices violate civil rights laws, qui tam litigation against federal contractors under the False Claim Act, and lawsuits brought by shareholders.