Premium Slowdown and Inflation Influences Driving Increased P/C Combined Ratio: Insights from AM Best
Success for the property/casualty industry in 2025 was characterized by significant rate increases and robust investment income. However, AM Best warns that the landscape may shift in 2026, with many lines of business experiencing plateauing or softening rates that could pressure financial results.
In a recent report, the insurance industry financial rating analyst projected lower net premium growth for 2026, anticipating an increase in the P/C industry combined ratio by 1.9 points, reaching 96.9.
Jacqalene Lentz, senior director at AM Best, noted, “Macroeconomic headwinds, including rising claims costs due to higher prices for materials necessary for home, commercial property, and auto physical damage repairs, will likely lead to a slightly higher industry loss ratio.”
In 2025, ongoing rate increases positively impacted overall financial results, counterbalancing adverse trends such as social inflation, nuclear verdicts, and litigation financing, particularly in general liability. Net premiums written rose by 6.1% in 2025, although this was a decline from the 8.7% growth seen in 2024. For most lines of business experiencing premium growth, AM Best reported that the magnitude of this growth diminished throughout 2025 and into 2026. Notably, sectors like cyber, D&O, commercial property, and workers’ compensation recorded lower renewal pricing in 2025 compared to the previous year.
The combined ratio of 95 in 2025 marked an improvement over 2024’s ratio of 98, representing the first time it fell below 100 in three years. This positive trend was aided by state regulators approving rate filings and insurers leveraging technology to enhance underwriting and efficiency. However, the home and auto sectors may face squeezed profit margins in 2026 due to escalating repair costs and increased fatality rates in auto accidents.
AM Best stated, “The segment should generate solid results, but with premium volume expected to be constrained as year-over-year rate changes flatten.”
For commercial lines, lower net premium growth in 2026 is projected to result in a higher combined ratio of 96.3, compared to 95.8 in 2025. Three commercial lines—auto, medical professional liability, and other/products liability—reported combined ratios exceeding 100 in 2025, with figures of 103.5, 106, and 108, respectively.
Net loss and loss adjustment reserves, often the largest liability on an insurer’s balance sheet and a leading cause of insolvency, remain a critical concern for AM Best. A re-estimation of the P/C industry’s ultimate reserves revealed an overall reserve position for year-end 2024 reserves, including the statutory discount, to a $9 billion deficiency—almost $10 billion better than initially estimated.
Additionally, AM Best highlighted that the flow of risk to the excess & surplus market was “one of the defining factors” of 2025. Admitted carriers increasingly shied away from risks in property, auto liability, and high-hazard casualty lines, while the E&S market stepped in to offer flexibility and customization.
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Success for the property/casualty industry in 2025 was characterized by significant rate increases and robust investment income. However, AM Best warns that the landscape may shift in 2026, with many lines of business experiencing plateauing or softening rates that could pressure financial results.
In a recent report, the insurance industry financial rating analyst projected lower net premium growth for 2026, anticipating an increase in the P/C industry combined ratio by 1.9 points, reaching 96.9.
Jacqalene Lentz, senior director at AM Best, noted, “Macroeconomic headwinds, including rising claims costs due to higher prices for materials necessary for home, commercial property, and auto physical damage repairs, will likely lead to a slightly higher industry loss ratio.”
In 2025, ongoing rate increases positively impacted overall financial results, counterbalancing adverse trends such as social inflation, nuclear verdicts, and litigation financing, particularly in general liability. Net premiums written rose by 6.1% in 2025, although this was a decline from the 8.7% growth seen in 2024. For most lines of business experiencing premium growth, AM Best reported that the magnitude of this growth diminished throughout 2025 and into 2026. Notably, sectors like cyber, D&O, commercial property, and workers’ compensation recorded lower renewal pricing in 2025 compared to the previous year.
The combined ratio of 95 in 2025 marked an improvement over 2024’s ratio of 98, representing the first time it fell below 100 in three years. This positive trend was aided by state regulators approving rate filings and insurers leveraging technology to enhance underwriting and efficiency. However, the home and auto sectors may face squeezed profit margins in 2026 due to escalating repair costs and increased fatality rates in auto accidents.
AM Best stated, “The segment should generate solid results, but with premium volume expected to be constrained as year-over-year rate changes flatten.”
For commercial lines, lower net premium growth in 2026 is projected to result in a higher combined ratio of 96.3, compared to 95.8 in 2025. Three commercial lines—auto, medical professional liability, and other/products liability—reported combined ratios exceeding 100 in 2025, with figures of 103.5, 106, and 108, respectively.
Net loss and loss adjustment reserves, often the largest liability on an insurer’s balance sheet and a leading cause of insolvency, remain a critical concern for AM Best. A re-estimation of the P/C industry’s ultimate reserves revealed an overall reserve position for year-end 2024 reserves, including the statutory discount, to a $9 billion deficiency—almost $10 billion better than initially estimated.
Additionally, AM Best highlighted that the flow of risk to the excess & surplus market was “one of the defining factors” of 2025. Admitted carriers increasingly shied away from risks in property, auto liability, and high-hazard casualty lines, while the E&S market stepped in to offer flexibility and customization.
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