Reinsurer TransRe is urging immediate and material increases in US Public Directors & Officers (D&O) insurance pricing, warning that the current market remains unsustainable.
In a recent market update, TransRe states that the D&O sector is once again operating at a loss, despite prior correctional pricing measures.
TransRe argues that rationales often cited for flat or declining rates—including increased market capacity, investment income, and a reduction in securities class action filings—do not hold up under scrutiny.
The reinsurer’s analysis shows a continued erosion in premium levels, with more than three in five renewals still seeing price reductions as of the end of 2024.
The reinsurance firm notes that many insurers are attempting to maintain flat renewals, but competitive pressures are undermining these efforts, with most policies still renewing at reduced prices.
This pricing behaviour, TransRe argues, is at odds with the actual exposures carriers face, especially in a macroeconomic environment marked by inflationary pressures and legal uncertainty.
According to TransRe, while the rapid rate increases of 2019 and 2020 temporarily restored balance to the D&O market, that progress has now been reversed.
The firm notes that underwriters appear reluctant to push for needed price increases, despite mounting evidence that the current environment is not sustainable.
TransRe’s proprietary data indicates that overall loss ratios are creeping back toward breakeven, with more recent underwriting years showing signs of deterioration.
The company warns that premium levels are failing to keep pace with rising loss costs and legal expense inflation, which reached 8.3% in 2024.
TransRe also observes that most insureds continue to renew with existing carriers, giving the illusion of stability, but closer analysis reveals that incumbent and new carriers alike are lowering prices to retain or win business.
The reinsurer finds that price competition remains intense across all segments, from small-cap to mega-cap risks, with reductions widespread even among accounts that have not experienced claims activity.
TransRe’s report underscores that only insureds with recent claims or red flags are seeing price increases—highlighting the broader inability of the market to differentiate risk appropriately.
The company’s claims data show that securities class action filings, excluding merger objections, have returned to levels above the long-term average, and severity remains elevated despite a dip in total settlement value in 2024.
TransRe attributes the recent decrease to factors such as fewer institutional investor-led claims and a rise in SPAC-related cases, which tend to settle for smaller amounts.
Still, the reinsurer cautions that long-term cost pressures remain intact, with emerging exposures such as AI litigation on the rise and legal costs continuing to escalate.
Based on its extensive D&O data and analytics, TransRe concludes that the industry is entering a phase of giving back the unearned gains of the past few years.
The reinsurer makes it clear that the time to restore discipline is now, likening the situation to “taking away the punchbowl just as the party is heating up.”
For carriers looking to protect long-term profitability, TransRe’s message is direct: the current pricing trajectory is inadequate, and immediate, significant action is required.
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