AM Best Revises U.S. Homeowners Insurance Outlook to Stable Amid Market Improvements

AM Best has updated its outlook for the U.S. homeowners' insurance segment from negative to stable, reflecting improvements in premium growth moderation and stronger catastrophe risk management amid better property reinsurance conditions. Although 2025 saw elevated catastrophe losses during the first half, the third quarter experienced unusually low hurricane activity, highlighting market resilience. Demand for homeowners' insurance remains robust, driven by increased claim frequency related to severe weather events and ongoing economic uncertainties. Premium growth continues, fueled by sustained rate increases and expanded coverage requirements, though at a slower pace compared to the previous year. Financially, stronger insurers maintain solid risk-adjusted capital and liquidity levels, but some carriers, especially those operating in high-risk zones, have seen capital erosion due to significant operating losses from major wildfires and tornado outbreaks in early 2025. Inflationary trends have pushed carriers to implement material rate hikes alongside inflation guard factors to sustain adequate pricing, while technology advancements are enhancing risk selection and loss mitigation processes. However, rising construction and homebuilding costs, compounded by tariff uncertainties, add to elevated loss costs, even though tariffs have yet to cause significant impact. The property catastrophe reinsurance market has experienced moderate rate softening throughout 2025, contributing to improved segment dynamics. Nevertheless, primary insurers in catastrophe-prone states may see less pronounced relief in upcoming renewals expected in January 2026. The overall improvement in reinsurance conditions is aiding homeowners insurers in managing volatility, though exposure to weather-related operational fluctuations persists. Given ongoing market pressures, mergers and acquisitions are increasingly of interest, particularly involving companies facing financial distress. The AM Best report and upcoming online briefing scheduled for December 9, 2025, will provide further insights into 2026 market segment outlooks for the U.S. insurance industry, including homeowners insurance and delegated underwriting authority enterprises. This information is vital for insurers monitoring risk management strategies, pricing adequacy, and capital positioning within the homeowners insurance sector amidst a challenging catastrophe environment.