A new report from Fitch Ratings shows that U.S. property and casualty (P&C) insurance will maintain strong underwriting profitability until 2026 despite changes in social inflation, slow economic growth and increased competition.
Fitch issued a “neutral” outlook for the industry in 2026, which includes commercial and personal lines. This stabilization follows a strong performance in 2025, which benefited from a mild hurricane season, large favorable reserve development, and strong personal automotive results.
Expected to improve to 94% in 2025, analysts expect the combined ratio to reach 96%-97% in 2026, reflecting a more normalized hurricane season and lower favorable reserve development.
Adjusted industry earnings returns are expected to decline slightly from 10.1% in 2025 to 9.1% in 2026.
As interest rates begin to fall, net investment income is likely to come under moderate pressure, although book yields are expected to remain historically healthy.
The report also highlights headwinds such as increased 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 of the long-tail casualty line remains a core issue. Large settlements and verdicts, as well as litigation abuse, continue to exert upward pressure on claim severity and pricing in the commercial auto, general liability and umbrella segments.
Fitch noted that business conditions should remain broadly unchanged in 2026, with capital resilient and profitability, although weak, continuing.
Pricing remains adequate despite soft rates, but overall commercial line price increases have slowed to the low single-digit percentage range, according to market surveys including the Council of Insurance Agents and Brokers Business Market Index.
Although rate increases have slowed to low single-digit levels, competition for personal cars remains rational and disciplined, the report said. The decline follows 30 consecutive quarters of double-digit rate hikes that ended in March 2025.
In contrast, renewal premium rates are still rising in underperforming areas such as commercial motors, excess liability and umbrella liability. The real estate market, while still profitable, has clearly entered a soft phase after a prolonged period of market weakness.
Although there are no major hurricane landfalls in the United States in 2025, insured losses in the first nine months still exceed $100 billion, mainly due to “secondary disasters” such as wildfires and severe convective storms.
Personal property performance faces inherent volatility from these natural disasters, but major insurers will benefit from softer reinsurance rates in 2026, with ample capacity making it a buyer’s market. However, reinsurers are expected to remain broadly stable in terms of terms and conditions and points of attachment.
Fitch added that the sector’s capital adequacy should remain broadly stable in 2026, sufficient to withstand the combined impact of large-scale loss events or adverse circumstances, providing a buffer against potential large-scale loss events.
In addition, the agency expects the ratio of net written premiums to policyholder surplus at the end of 2025 to be 0.8 times.
Excess capital coupled with easy interest rates are expected to drive increased M&A activity in 2026. Insurers are looking to diversify their books or exit underperforming businesses, the report said.
These include Everest Group’s sale of renewable rights to its major global retail operations to American International Group, and The Travelers Companies Inc.’s sale of its Canadian personal insurance business and most of its commercial insurance operations.