TransRe finds 2025 and 2026 public D&O outlook 'unprofitable'

By Isha Marathe

May 2 - (The Insurer) - The U.S. public D&O market is not seeing upward momentum, with insurers currently "fighting for flat" but losing, the 2025 Insurance Market Update from TransRe found, as the reinsurer pushes for "immediate (and) significant price rises."

TransRe, which based the research on over 30,000 policies in its database, said "today’s U.S. public D&O insurance market is, in the aggregate, unprofitable."

"Rationalizations for current prices, which include new capacity, rate adequacy, investment yields, and fewer class actions, are as unconvincing as ever."

While the speed of reductions slowed in 2024, prices have continued to fall in the public D&O market, as TransRe noted that the falls are nominal changes before adjusting for increased loss cost trends.

It added that high excess layers +6.6% since 2013, but during that period, the S&P 500 more than tripled, as has the average capitalization of each constituent company.

While small cap prices spiked the highest between 2019 and 2021, they had fallen the fastest by 2024. Large cap prices have been steadier and subject to less volatility. However, TransRe said those insureds remain at higher risk from securities class actions.

In Q1 2018, among policies with price decreases in public D&O, the average change was -8%. By Q1 2023, when many more policies were renewed down, that average change rose to -19%.

TransRe noted that more recently there have been more policies that have renewed flat, but very few have renewed up, and more than three of every five policies continue to renew with price reductions.

This is a significant change from mid-2020, when most policies were renewing up by 50% or more.

"(Now) the only insureds to see price rises are those who have reported a claim or have had some concerning developments. If everyone else’s price is dropping, insurers are clearly struggling to differentiate," TransRe said.

"The trajectory of price changes is insufficient to sustain profitability."

Since 2022, as the market has moved out of its correction phase and softened, ongoing price reductions are widespread among incumbents and competitors alike

The key loss drivers for the state of the public D&O market are a rise in legal filings for core claims, more SPACs, legal fee inflation and filing frequency and outcome severity, TransRe cited Cornerstone Research’s 2024 SCA Review.

While the recent downward trend in frequency has halted as SPACs are settling at lower numbers, institutional investors are involved in fewer cases, and more of the defendants are delisted or have declared bankruptcy – severity has shown little sign of easing, and losses remain a concern, TransRe said.

Additionally, legal fee inflation remains elevated, and with AI-related filings more than doubling from 2023 to 2024, settlement amounts are expected to remain at ‘relatively high levels’ going forward.

As a result, TransRe said its outlook for 2025 to 2026 is unprofitable for the U.S. public D&O market.