Auto insurance ‘rebound’ could carry through 2025 as decade-high net profit reached
AM Best says U.S. personal auto insurers saw the segment’s first-half 2025 direct loss ratio fall again from the same two previous six-month periods, indicating that the significant rebound experienced in 2024 may carry over through 2025.
The segment’s net underwriting income of nearly $14 billion in 2024 followed three years of underwriting losses, including a $17 billion loss in 2023, while personal auto liability and auto physical damage turned a net profit in 2024.
Unlike the last few years, in which auto liability proved to be the more profitable line, auto physical damage in 2024 achieved a significantly lower combined ratio (87.9 compared with 101.2 in 2023) and higher net profits, according to the report.
“Personal auto physical damage and auto liability combined for a decade-high overall net profit of $37.6 billion, which is the greatest profit for the segment in a decade and represents a huge recovery from 2022, where the two coverage parts combined for a reported net operating loss of more than $21 billion,” said Helen Andersen, an AM Best industry research analyst, in a press release.
The report states that the segment’s positive momentum has carried into 2025. The first-half 2025 direct loss ratio of 61.2 was a notable improvement over the 67.6 loss ratio recorded in the first half of 2024 and superior to the 2023 first-half result of 77.1.
“With companies successfully achieving rate increases in recent years and being judicious in applying available pricing credits at the same time, earned premiums continue to strengthen as written premium totals rise,” the release states.
“At the same time, personal auto insurers’ claims costs continue to rise, with distracted driving remaining an important concern given the effect on loss frequency and severity trends. The average cost per private passenger auto claim, which has reached almost $13,000, increased by more than 10% year over year in 2024.”
David Blades, AM Best industry research and analytics associate director, added, “A factor keeping loss costs from ballooning out of control is a reduction in the number of claims since the pandemic, as total loss costs are increasing slower than average loss costs. An uncertainty going forward is the financial impact of higher tariffs, if imposed on foreign countries, on insurer claim severity, investment returns, and profit margins. This unknown could be a critical factor for personal auto insurers over the near-to-medium term.”
Verisk and the American Property Casualty Insurance Association (APCIA) have reported half-year underwriting gains for the property/casualty (P&C) insurance industry, which are estimated to be $11.5 billion.
Despite persistent headwinds, the industry maintained underwriting profitability through mid-year 2025, driven by more adequate premium rates and investment gains, states a press release from Verisk and APCIA.
According to the findings, Q1 losses were driven largely by the Palisades and Eaton wildfires, and outpaced historical averages, but did not carry over at the same magnitude in Q2.
“Surplus levels remained historically high at $1.08 trillion, reinforcing the industry’s strong financial positioning and ability to meet policyholder obligations; however, inflation, climate volatility, and line-specific pressures continue to challenge long-term overall profitability,” the release states.
Robert Gordon, APCIA policy, research, and international senior vice president, added that net written premiums growth slowed to 1.9%.
“The lack of any significant natural catastrophes in the second quarter helped offset the record-breaking catastrophe losses related to the California wildfires and severe convective storms impacting Texas and Georgia earlier in the year,” he said. “However, the U.S. is now entering the height of hurricane and wildfire season, so time will tell if the industry is able to maintain underwriting gains through year-end.”
According to the findings, insurers wrote $472 billion in premiums during the first half of this year, compared to $464 billion during the same period in 2024. Meanwhile, earned premiums grew 3.9% to $453 billion in the first half of 2025.
The mid-year 2024 net underwriting gain was $3.8 billion, the release says.
Saurabh Khemka, co-president of underwriting solutions at Verisk, says that “insurers are navigating a new era of risk, where extreme weather events are no longer anomalies and frequency perils are now persistent stressors on underwriting performance.”
“While some lines are showing signs of improvement, the broader industry continues to walk a fine line,” he said. “Combined ratio has edged down slightly from this time last year, reflecting underwriting discipline, but escalating catastrophe losses — most notably January’s unprecedented California wildfires — underscore the volatility ahead. Predictive analytics, granular data, and adaptive pricing strategies can help insurers respond to a rapidly evolving risk landscape.”
In May, S&P Global Market Intelligence reported that the net combined ratio for the U.S. P&C industry reached its lowest level in over a decade last year.
The industry’s aggregated P&C lines posted a net combined ratio of 96.5%, marking the best annual performance since 2013, when it was 96.2%, the study found. S&P Global says the figure represents a significant improvement from the previous year’s net combined ratio of 101.6%.
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Featured image credit: Khanchit Khirisutchalual
Chart provided by Verisk and APCIA