The United States property and casualty (P&C) insurance sector recorded its strongest performance in ten years in 2025, driven by disciplined underwriting, robust pricing and investment gains, despite ongoing pressures from claim costs and liability exposure, according to credit rating agency AM Best.
In its annual Review & Preview Best’s Market Segment Report, “Rate Action and Investment Gains Drive US P&C Industry Results Despite Headwinds,” AM Best notes that momentum in pricing and investment income across principal lines allowed net underwriting income for the P&C segment to more than double year-on-year to an estimated $39 billion, even after significant first-quarter losses due to California wildfires and other weather-related events.
The combined ratio is projected to improve to 95.0 in 2025 from 97.1 in 2024. AM Best cautions, however, that stabilising or softening rate trends across most major lines could weigh on underwriting results in 2026, and a severe catastrophe could produce worse outcomes.
The personal lines segment remained strong, with private passenger auto and homeowners’ lines maintaining favourable trends. Within commercial lines, workers’ compensation and commercial property underpinned underwriting profitability, helping to offset weaker results in commercial auto, general liability, including umbrella and excess coverage, and medical professional liability.
Elevated loss severity due to social inflation and third-party litigation funding continues to challenge casualty insurers. AM Best further highlights that re-estimation of the P&C industry’s ultimate reserves for year-end 2024 improved the overall reserve position to a $9 billion deficiency, nearly $10 billion better than originally projected. While liability line development factors appear to be stabilising, workers’ compensation development remains on an upward trajectory, slightly weakening its reserve position.
Despite early-year catastrophe losses, including wildfires in the greater Los Angeles area and severe convective storms across the Midwest, South and Plains, the industry’s resilience was underpinned by continued rate momentum in personal and commercial lines and strong results from workers’ compensation.
AM Best estimates that net catastrophe losses in 2025 added 6.9 points to the combined ratio, down from 8.4 points in 2024. Core underwriting remained solid, with a normalised accident-year combined ratio of 89.5, consistent with 89.3 in 2024. Growth in the excess and surplus lines market continued as admitted carriers increasingly ceded high-hazard risks, particularly in property, auto liability and complex casualty lines.
Net premiums written rose 6.1% in 2025, a moderation from 8.7% in 2024, as rate increases tapered across most lines. Certain lines, including workers’ compensation, cyber, directors and officers liability and commercial property, experienced year-on-year reductions in renewal pricing. AM Best projects lower net premium growth of 4.0% in 2026 and a slight increase in the combined ratio to 96.9, reflecting higher repair and material costs impacting claims.
The personal lines segment improved further in 2025, with the combined ratio declining to 94.0. Private passenger auto and homeowners lines benefited from enhanced risk management and operational efficiencies.
However, AM Best warns that margins may tighten in 2026 as rate moderation continues and loss severity pressures persist. In commercial lines, the combined ratio is estimated at 95.8 for 2025, with workers’ compensation and commercial property supporting profitability while commercial auto, general liability and medical professional liability remain challenged. AM Best expects the 2026 combined ratio to rise slightly to 96.3 due to lower net premium growth, although the segment remains profitable.
Investment income was a key contributor to earnings, rising an estimated 13% in 2025. AM Best notes that insurers’ portfolios, largely weighted to high-quality bonds, benefited from reinvestment of maturing lower-yielding securities at higher rates, while positive equity market performance further supported results. Strong operating cash flows from improved underwriting enabled surplus growth and positioned the industry favourably for 2026.
Reserve adequacy also strengthened over the year. Re-estimation of year-end 2024 reserves improved the overall position by nearly $10 billion, and AM Best projects year-end 2025 reserves will strengthen by $8.3 billion. Core reserves are expected to rise by $6.7 billion and asbestos and environmental reserves by $1.6 billion, with the largest improvement in other/products liability, partially offset by weakening in workers’ compensation and other lines.
Overall, AM Best estimates a 2025 reserve deficiency of $0.8 billion, representing approximately 0.1% of booked reserves, with undiscounted reserves showing a surplus. The industry has reported 19 consecutive years of favourable one-year reserve development, reinforcing balance sheet strength.
AM Best maintains a Stable outlook for both personal and commercial lines. For personal lines, improved underwriting, adequate rate action, stronger capitalisation and higher investment returns are expected to sustain results, although pressures remain from loss severity, severe weather and competitive activity.
Commercial lines benefit from disciplined underwriting, strong capitalisation and enhanced investment income, while casualty exposures face ongoing challenges from social inflation, litigation and nuclear verdicts. Investment returns are anticipated to remain a key support for long-tailed casualty lines, reinforcing the importance of prudent pricing and careful risk selection.
“AM Best expects lower net premiums written growth in 2026 and tighter margins across the P/C industry in 2026,” added Jacqalene Lentz, Senior Director, AM Best. “Macroeconomic headwinds, including rising claims costs attributable to higher prices of materials required for home, commercial property and auto physical damage repairs, will likely lead to a slightly higher industry loss ratio.”
“Lower net premium growth due to declining rate levels across several commercial lines is projected to lead the segment to a combined ratio that will be a couple points higher in 2026, but still reflecting underwriting profitability,” said Anthony Molinaro, Associate Director, AM Best.
“Personal lines’ profit margins are likely to be squeezed in 2026. The segment should generate solid results, but with slightly higher underwriting ratios and slightly lower operating returns.”
Overall, AM Best concludes that the US P&C industry enters 2026 with stronger fundamentals, underpinned by improved underwriting, reserve adequacy and investment performance, while remaining attentive to catastrophe and liability-driven risks.
