AM Best: Wildfires push US P&C industry to $1.1 billion Q1 underwriting loss

By Michael Loney

June 9 - (The Insurer) - The U.S. property casualty industry swung to a $1.1 billion underwriting loss in the first quarter, as wildfire losses drove a 5 point deterioration in the combined ratio to 99.4%, AM Best said.

In a new report, AM Best said that the U.S. property casualty industry’s $1.1 billion net underwriting loss in the first quarter was down from a $9.4 billion gain in the same prior-year period.

The swing was driven largely by losses attributable to the January wildfires in California.

The combined ratio deteriorated to 99.4% in the first quarter from 94.4% in the first three months of 2023.

Catastrophe losses accounted for an estimated 14.7 percentage points on three-month 2025 combined ratio, up sharply from 5.4 points in the prior year’s first quarter.

Excluding $9.6 billion of favourable reserve development during Q1 2025, the industry’s accident year combined ratio was 103.6%.

The underwriting loss drove a 34.4% drop in pre-tax operating income to $19.6 billion in the first quarter, despite net investment income increasing 2.4%.

A 74.6% reduction in net realised capital gains was driven primarily by a $10.5 billion decline at National Indemnity Company. This contributed to the industry’s net income declining 50.4% from the prior year to $19.8 billion.

The data from AM Best is derived from companies’ annual statutory statements received as of May 29, 2025.

FITCH EXPECTS 2025 COMBINED RATIO BELOW 100%

Fellow rating agency Fitch Ratings’ analysis of statutory data showed a better combined ratio than AM Best’s analysis suggested.

Fitch said that the U.S. P&C property casualty combined ratio was 98.8% in Q1 2025, up 4.8 points compared with the same period of last year.

Elevated catastrophe losses were partially offset by a higher amount of favorable prior-period reserve development, which represented 4.3% of earned premiums in Q1 2025 compared with 3.3% in Q 1 2024.

“We expect the industry’s combined ratio to increase modestly in fiscal 2025 from 97% in fiscal 2024 but remain below 100%,” Fitch said. “This expected increase is due to catastrophe losses and the potential for higher claims severity in both auto and property lines from tariff-induced inflation.”

The industry direct loss ratio increased by 7.1 points in thai year's first quarter, with personal lines increasing by 10.3 points and commercial lines increasing by 3.1 points. The homeowners’ direct loss ratio increased 45.3 points to 102.5%.

Workers’ compensation and commercial auto reported modest improvement in first quarter results, while other liability and commercial multi-peril experienced deterioration.

“The pace of rate increases for personal lines will continue to slow given the return to profitability and intensifying market competition as firms look to improve retention and grow new business,” Fitch said.

“However, we expect insurers would take rate action if tariffs and supply chain issues related to vehicles and replacement parts lead to higher loss cost severity.”

Direct written premiums for personal lines increased by 7.5% in the first quarter because of substantial premium rate hikes for homeowners. However, Fitch said that rate increases have significantly moderated for private passenger auto.

“Commercial lines pricing momentum is likely to slow in 2025, with continued variability among product lines, resulting in a smaller underwriting profit for the year versus 2024,” Fitch said.

Commercial lines DWP grew modestly in the first quarter to 5.8%, from 4.6% in Q1 2024.

“Commercial auto and other liability-occurrence business once again saw the largest YoY premium growth of commercial lines, as meaningful rate actions continue in these challenging lines of business. However, commercial multi-peril DWP growth has slowed, and workers’ compensation premiums declined during the period,” Fitch said.