Reinsurance, Treaty Issues and Capacity Constraints in International Directors and Officers (D&O) Liability Insurance

Directors and Officers (D&O) liability insurance for multinational firms is under pressure. In the U.S.—particularly in major corporate centers like New York City and the San Francisco Bay Area—rising securities litigation, regulatory enforcement, and an active M&A environment have combined with reinsurance market cycles to tighten capacity and increase prices. This article explains how reinsurance and treaty structures affect primary and excess D&O capacity for U.S.-focused multinational programs, outlines practical buyer impacts, and gives actionable steps for risk managers and general counsel negotiating international D&O placements.

Executive summary (what buyers in the USA must know)

• Reinsurance capacity and treaty terms drive what insurers can offer on multinational D&O programs. When reinsurers restrict limits, primary insurers reduce placements or increase price.
• Treaty exclusions and non‑proportional structures can leave gaps for cross‑border claims, particularly for investigations, sanctions, insolvency and fraud-related exposures.
• Capacity constraints have translated to higher premiums and reduced appetite for certain risks—public-company securities exposure, life-sciences exposures, and fintech remain hard to place in New York and California markets.
• Active buyer steps: pre-placement modeling, harmonizing master and local policy wordings, and using brokered program layering with reinsurer-friendly carriers (e.g., Chubb, AIG, Zurich, Travelers) will improve placement outcomes.

How reinsurance affects D&O primary and excess capacity

Reinsurance is the capital that enables primary insurers to write large D&O limits. The two primary treaty structures to understand:

• Proportional (quota-share) reinsurance: the reinsurer takes a fixed percentage of premiums and losses. This directly expands capacity and shares volatility — attractive when reinsurers have confidence in underwriting models.
• Non-proportional (excess-of-loss) reinsurance: reinsurers pay above attachment points. These treaties control maximum insurer losses on large, infrequent claims. Tightening on excess treaties reduces high-limit capacity (excess layers), a key driver of global program placements.

When reinsurers face losses in other lines (e.g., catastrophe losses) or poor D&O underwriting results, they raise attachment points, reduce participation, or add exclusions—forcing cedants (primary insurers) to either reduce offered limits, raise premiums, or seek alternative market solutions (syndicates, captive, or fronting arrangements).

Source market commentary (broker reports) shows significant reinsurance-driven tightening of available excess capacity for public-company D&O in recent market cycles Aon Market Insights and Marsh D&O insights. These broker analyses explain the correlation between reinsurer discipline and higher renewal rates for U.S.-based exposures.

Treaty issues that create coverage friction for cross‑border D&O programs

Multinational D&O programs are complicated by treaty language that may not contemplate cross-border claim dynamics. Key treaty issues include:

• Jurisdiction and service-of-process risk: Reinsurers may impose treaty restrictions or higher retentions for losses arising from the U.S., United Kingdom, or specific jurisdictions known for plaintiff-friendly outcomes (e.g., New York, Delaware). That increases cedant retentions for U.S. exposures.
• Sanctions and political risk exclusions: Treaties often include or mirror sanctions exclusions that may limit coverage for claims linked to sanctioned entities or jurisdictions. This is material for U.S.-listed multinationals with operations in sanctioned regions.
• Insolvency, bankruptcy carve-outs: Reinsurers may be reluctant to cover large bankruptcy-related D&O claims arising in complex cross-border insolvencies (e.g., Chapter 11 filings with foreign recognition proceedings).
• Claims-made reporting and late-notice traps: Treaty wording on late reporting can be stricter than primary policy language — creating downstream gaps if not aligned.

These treaty frictions are especially consequential for U.S.-headquartered multinationals defending enforcement actions by the SEC or pursuing cross-border M&A, where defense costs and indemnity exposures can quickly exhaust local limits.

Capacity constraints: practical impacts in the U.S. market (New York & California focus)

Capacity constraints manifest differently across the U.S.:

• Primary market tightening for high-profile public companies (New York-listed, Fortune 500): Primary insurers have reduced appetite for aggressive securities exposures. Buyers now frequently face larger primary retentions or higher primary premiums.
• Excess layer shortages for California life sciences and tech companies: Insurers writing primary limits may struggle to place excess layers, pushing these buyers to use captive programs or reduce limit expectations.
• Local policy compliance in state-specific litigation forums: Insurers and reinsurers demand clarity on where local policies must apply, impacting program design when directors face claims in Delaware, California, or state courts.

Indicative market pricing (U.S.-centric ranges for context):

• Small private U.S. company ($1M/$2M limit): roughly $5,000–$40,000 annually depending on revenue, industry and prior claims.
• Mid-sized public company ($5M–$10M limit): $50,000–$500,000+ depending on securities exposure and market sentiment.
• Large public (Fortune 100): premiums can exceed $1 million, with aggregate D&O towers often structured to provide $100M–$500M of total limit using multiple insurers and reinsurers.

These ranges reflect broker market guidance and recent placement trends reported by major brokers and market analysts (Aon, Marsh).

How specific carriers and pricing dynamics shape capacity

Major global carriers play different roles in U.S. international D&O:

• Chubb — large appetite for primary and mid-excess layers; competitive on public and private placements but selective on high-severity biotech risks.
• AIG — significant excess capacity historically; programwide placements often rely on AIG excess layers for U.S. securities exposures.
• Zurich — active in multinational program construction due to global footprint and treaty support.
• Travelers — strong in U.S. middle market with disciplined underwriting.
• Berkshire Hathaway Specialty Insurance — used for stable risks requiring certainty of capacity and strong balance sheet.

Insurer pricing will vary by U.S. location (e.g., New York vs. midwestern headquarters), given differing litigation environments and enforcement activity. Buyers in New York and California typically see higher pricing pressure compared with lower-litigation states.

Practical buyer strategies to mitigate treaty- and reinsurance-driven constraints

• Layer strategically: Use carriers with strong treaty support for lower excess layers and diversify excess capacity across multiple reinsurer stacks.
• Harmonize policy language: Ensure master policy and local policies are reconciled — work with lead counsel to align definitions, limits, and reporting obligations. See how to structure programs in How to Structure a Multinational D&O Program: Local Buy vs Global Master Policy Options.
• Negotiate treaty-friendly endorsements: Ask primary carriers for endorsements that limit reinsurer escape routes (e.g., narrow late-notice language) or provide clarity on allocation in multi-jurisdiction claims.
• Pre-placement modeling and stress tests: Present reinsurer-facing loss scenarios (SEC inquiries, shareholder derivative suits, cross-border insolvency) to brokers and carriers to secure realistic capacity commitments.
• Consider captives and fronting structures: For high retentions or hard-to-place excess layers, captive funding plus fronting insurers can secure higher aggregate limits while keeping market relationships intact.
• Coordinate investigations & claims handling globally: Proactively set expectations for defense counsel coordination and coverage positions—see related guidance on Claims Handling Across Borders: Coordinating Defense Counsel and Insurer Responses in Directors and Officers (D&O) Liability Insurance Cases.

Quick comparison: Typical capacity/pricing roles by carrier class

Checklist for U.S.-based buyers preparing for a hard D&O reinsurance market

• Update risk matrix with cross-border litigation scenarios (SEC, shareholder suits, regulatory enforcement).
• Collect and present loss history, governance improvements, and M&A pipeline to brokers and insurers.
• Determine acceptable retentions per jurisdiction (Delaware, New York, California).
• Negotiate policy wording and reinsurer-friendly endorsements before binding.
• Evaluate captive or sidecar options for excess needs.

Further reading (internal resources)

• Cross‑Border Directors and Officers (D&O) Liability Insurance: Managing Multi‑Jurisdictional Risk
• Local Policies, Local Laws: How International Regulations Alter Directors and Officers (D&O) Liability Insurance Coverage
• How to Structure a Multinational D&O Program: Local Buy vs Global Master Policy Options

Sources and market commentary

• Aon — market insights and D&O updates for the Americas (market cycles, rate trends): https://www.aon.com
• Marsh — D&O insurance market analysis and placement guidance (capacity observations): https://www.marsh.com
• Broker and industry reporting on D&O rate and capacity movements (examples of U.S. market impacts): see insurer and broker briefings on repositioning for reinsurance cycles at the Aon and Marsh links above

If you need a tailored placement strategy or sample program structures for a U.S.-headquartered multinational (New York or California focus), provide company size, industry and limit targets and I’ll model layering and likely pricing outcomes.