Capital Stress and A.I. Uncertainty Fuel Management Liability Risk for Private Companies

Volatile capital markets, murky A.I. returns and unpredictable regulation are converging to raise D&O exposure for private companies, according to Munich Re Specialty.
By: | October 10, 2026
Topics: D&O | News | Underwriting
management liability risk

Private companies are facing a confluence of financial and operational pressures in 2026 that could translate into management liability claims, according to a report by Munich Re Specialty North America on private company risk trends.

Among the warning signs cited is the cyclically adjusted price-to-earnings ratio on the S&P 500 Index, which stood at about 41.1 in August 2026, its highest level since 2000 and well above the historic average of 16, the report said. The report noted that CAPE ratios exceeding 25 have historically preceded market downturns, including the 2000 dot-com collapse and the 2008 global recession.

Capital Access and Private Credit Growth Create New Exposures

Private companies are struggling to access capital on favorable terms amid continued stress in capital markets and persistent inflation, according to Munich Re Specialty. Contributing factors include the Federal Reserve’s decision to stop issuing forward guidance on monetary policy, which has added to market volatility, and long-term U.S. borrowing costs that have climbed to their highest level in nearly two decades.

Geopolitical and energy volatility are also adding to inflationary pressure and expenses, the report said, which could force companies to scale back growth plans and fall short of investor expectations. That underperformance tends to draw investor scrutiny, raising the likelihood of claims against directors and officers over alleged poor decision making.

Many private companies are turning to private credit as an alternative to traditional bank loans, a market the Financial Stability Board estimates holds between $1.5 trillion and $2 trillion in assets. Morgan Stanley data cited in the report shows the private credit market grew 50% between 2020 and 2025 and could reach $5 trillion by 2029.

The sector’s expansion traces back to the tightening of bank lending regulations following the 2008 financial crisis, with asset managers, pension funds, private equity firms and banks now participating through financing arrangements and partnerships. The Financial Stability Board noted the market is concentrated in a handful of sectors, including technology, healthcare and services.

Munich Re Specialty identified several risks tied to this growth, including limited transparency that can prompt investors to challenge board financing decisions, and liquidity pressure in an industry that has not yet been tested by an economic downturn. An investor pullback could force borrowers into layoffs, shutdowns or strategic pivots, any of which could generate director and officer claims, the report said. Private credit firms themselves are also facing redemption pressures, adding to borrower instability, while finance and operational risk management functions may fail to communicate internally about credit facility risks, the report said.

A.I. Investment Boom Raises Governance Questions

A record $150.79 billion in private investment flowed into A.I. projects worldwide in 2024, according to Stanford University’s Institute for Human-Centered Artificial Intelligence, cited in the report. More than two-thirds of that investment occurred in the U.S., concentrated in A.I. infrastructure, research and governance, followed by data processing and data management. Despite the scale of investment, returns for investors remain unclear, the report said, raising the likelihood of a market correction tied to A.I. overinvestment.

For private companies, Munich Re Specialty said unanswered questions around A.I. implementation could expose boards to allegations of overconfidence, poor diligence or capital misallocation if a company is forced to reduce or pause its A.I. plans. Governance gaps compound this risk: many smaller and private companies lack board members with relevant technology expertise, have minimal or no A.I. governance procedures, and face pressure to adopt the technology without adequate safeguards, according to the report.

Regulatory Unpredictability Adds to Planning Risk

Regulatory and government oversight remain difficult to predict in 2026, the report said, with tariffs, court decisions and shifting government policies complicating supply chain management for private companies. Because court rulings and policy reversals are hard to forecast, the report said, this instability creates operational and financial planning risk, and management decisions made amid shifting policy could face claims alleging that boards should have anticipated the outcomes.

Read the full report here. & 

The R&I Editorial Team can be reached at [email protected].

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