The property and casualty insurance industry rode a wave of rate hikes and strong investment income to solid results in 2025.
But that momentum may not last. According to AM Best, as pricing in many major lines begins to plateau — and in some cases soften — in 2026, insurers could face growing pressure on their bottom lines. The big question now: Can the industry maintain its financial strength if rate growth slows?
In a newly released report, AM Best signaled a potential shift ahead for insurers. The ratings agency said it expects net premium growth to slow in 2026 and projects the property/casualty industry’s combined ratio will climb 1.9 points to 96.9. While that figure still suggests underwriting profitability, the uptick hints at mounting cost pressures and thinner margins — raising fresh questions about how resilient carriers will be if market conditions continue to soften.
“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,” said Jacqalene Lentz, senior director at AM Best, said in a statement.
AM Best said continued rate increases in 2025 helped lift overall financial results, cushioning the impact of mounting headwinds such as social inflation, nuclear verdicts, and third-party litigation funding — pressures felt most sharply in general liability. Still, growth showed signs of cooling. Net premiums written rose 6.1% in 2025, down from 8.7% in 2024. Across most business lines, the pace of premium growth steadily weakened throughout 2025 and into 2026. In fact, renewal pricing softened year over year in cyber, D&O, commercial property, and workers’ compensation — an early signal that the market’s hard-pricing tailwind may be fading.
The industry’s combined ratio improved to 95 in 2025, down from 98 in 2024 — marking the first time in three years it dipped below the critical 100 threshold. Rate approvals from state regulators gave personal lines carriers much-needed relief, while investments in technology boosted underwriting discipline and operational efficiency.
But the turnaround may face fresh strain. Rising home repair costs and an uptick in auto fatalities threaten to squeeze profit margins in 2026, raising concerns that the hard-won gains of 2025 could prove difficult to sustain.
“The segment should generate solid results, but with premium volume expected to be constrained as year-over-year rate changes flatten,” AM Best said.
AM Best estimates that slower net premium growth in 2026 will push the commercial lines combined ratio up to 96.3, compared with 95.8 in 2025 — a subtle but meaningful shift that signals mounting pressure on underwriting performance.
More concerning, several key segments are already under strain. In 2025, commercial auto, medical professional liability, and other/products liability all posted combined ratios above 100 — coming in at 103.5, 106, and 108, respectively — underscoring the profitability challenges simmering beneath the surface.
Net loss and loss adjustment expense reserves — often the largest liability on an insurer’s balance sheet and a frequent trigger of insolvency — remain a top concern for AM Best. The ratings agency said a recent re-estimation of the property/casualty industry’s ultimate reserves found that year-end 2024 reserves, including the statutory discount, reflected a $9 billion deficiency. While still a shortfall, that figure is nearly $10 billion better than originally projected — a notable improvement that offers some reassurance, even as reserve adequacy continues to loom as a critical risk.
AM Best also highlighted a major market shift in its report, calling the steady flow of risk into the excess and surplus (E&S) market “one of the defining trends” of 2025. As admitted carriers pulled back from property, auto liability, and higher-hazard casualty exposures, they left a widening gap in coverage. The E&S market moved quickly to fill that void, offering the flexibility and customized solutions many policyholders could no longer find in the standard market — a dynamic that reshaped the competitive landscape and could continue to influence underwriting strategies in the year ahead.
