US property and casualty (P&C) insurance is set to maintain strong underwriting profitability through 2026, despite a shifting landscape, marked by social inflation, slow economic growth, and heightening competition, according to a new report by Fitch Ratings.
Fitch has issued a ‘neutral’ sector outlook for 2026, including commercial and personal lines. This stability follows a strong 2025, which benefited from a benign hurricane season, outsized favourable reserve development, and strong personal auto results.
After a projected improvement to 94% in 2025, analysts expect a 96%-97% combined ratio for 2026, reflecting a more normalised hurricane season and lower favourable reserve development.
The adjusted industry return on surplus is expected to dip slightly from 10.1% in 2025 to 9.1% in 2026.
As interest rates begin to decline, net investment income may face modest pressure, though book yields are expected to remain historically healthy.
The report also highlighted several headwinds – like increasing competition, geopolitical uncertainty, slowing economic growth and a challenging legal environment – that will test the industry’s pricing discipline, reserve adequacy, and claims management.
Reserve adequacy in longer tail casualty lines remains a central concern. Large settlements and verdicts, as well as litigation abuse, continue to exert upward pressure on claims severity and pricing across commercial auto, general liability, and umbrella.
Business conditions should remain mostly unchanged in 2026 with resilient capital and continued, although softening, profitability, Fitch noted.
While pricing remains adequate despite softening rates, with overall commercial lines price increases moderating to the low single-digit percentage range, according to market surveys, including the Council of Insurance Agents & Brokers Commercial Market Index.
Competition in personal auto remains rational and disciplined, according to the report, even though rate increases have slowed to low single-digit levels. This decline follows 30 consecutive quarters of double-digit rate increases, which concluded in March 2025.
In contrast, renewal premium rates are still increasing in underperforming segments such as commercial automobile and excess and umbrella liability. The property market, while still profitable, is now clearly entering a softening phase after an extended period of a hard market.
Despite no major US hurricane landfalls in 2025, insured losses still topped $100 billion through the first nine months, largely due to “secondary perils” like wildfires and severe convective storms.
Personal property results face inherent volatility from these natural catastrophes, but primary insurers will benefit from softening reinsurance rates in 2026, with ample capacity making it a buyer’s market. However, reinsurers are expected to mostly hold steady on terms and conditions and attachment points.
The industry’s capital adequacy for 2026 should remain largely stable and sufficient to withstand large loss events or a combination of adverse circumstances, Fitch added, providing a buffer against potential large-scale loss events.
Additionally, the agency estimates the net written premiums to policyholder surplus ratio at 0.8x for year-end 2025.
The excess capital, combined with easing interest rates, is expected to fuel an increase in M&A activity in 2026. According to the report, insurers are looking to diversify their books or exit underperforming lines.
These include Everest Group’s sale of renewable rights of its global primary retail business to American International Group, and The Travelers Companies Inc.’s sale of its Canadian personal insurance business and most of its commercial insurance business.
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