AM Best has warned about dwindling reserves and slower claims resolution in the United States directors and officers liability insurance market.

The report suggests that what for decades as been a highly profitable line of business for many Bermudian-based speciality insurers could face pressure in the years ahead.

The rating agency said D&O premiums fell for a fourth consecutive year in 2025 as abundant capacity and competition drove down pricing.

While underwriting remained profitable, AM Best pointed to adverse reserve development in accident years 2023 and 2024 and a rising loss ratio as early signs that margins may be beginning to tighten.

“This might indicate an underlying deficiency that could lead to a downturn in D&O liability underwriting results over the near term,” said David Blades, associate director, AM Best.

The report noted that direct premiums written by monoline D&O insurers peaked at nearly $15 billion in 2021 before falling to just over $10 billion in 2025. At the same time, the direct loss ratio increased to 54.5 per cent last year from 49 per cent in 2024.

AM Best said the pace of claims closure is also a cause for concern. Open claims for accident years 2023 and 2024 are tracking at levels similar to those of the latter part of the previous decade, which ultimately resulted in adverse reserve development across the sector.

AM Best warned that claims staying open could leave insurers increasingly exposed to social inflation. When claims stay open longer, they can eventually settle for more than insurers have reserved, making today’s profitable results look less profitable.

The report also pointed to a range of risks facing corporate directors and officers, including geopolitical instability, cyber security oversight and artificial intelligence. AM Best said AI-related securities litigation is becoming a growing concern as boards grapple with use disclosures and oversight.

The report follows a similar warning from AM Best last year, when the agency said the D&O sector was navigating an evolving risk landscape shaped by AI, cyber threats and shareholder litigation. Although insurers still reported strong profits, AM Best said that these emerging exposures could test that.