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 market from negative to stable, reflecting several market improvements. The adjustment follows a moderation in premium growth, enhanced catastrophe risk management, and improved property reinsurance conditions. Despite elevated catastrophe-related losses in early 2025, the segment demonstrated resilience, with reduced severe weather events such as hurricanes in the third quarter aiding stability. Demand for homeowners’ insurance coverage has continued to rise, driven by increased claim activity stemming from extreme weather and broader economic uncertainties. Although premium growth remains strong, it has decelerated compared to the previous year. Insurers have focused on rate adjustments and incorporating expanded coverage to manage these dynamics effectively. Strong risk-adjusted capitalization and adequate liquidity remain characteristic of leading insurers, but some carriers in high-risk regions have seen diminished capital cushions due to significant losses from events like California wildfires and tornado outbreaks. Consequently, insurers prioritize rate actions to address inflationary and macroeconomic pressures, supported by material rate hikes and advanced technology for risk evaluation and loss mitigation. Rising homebuilding and construction costs continue to elevate loss expenses, compounded by tariff-related uncertainties impacting construction and repair pricing. These cost pressures coincide with ongoing market volatility, fueling merger and acquisition activity, particularly among financially distressed carriers. Property catastrophe reinsurance rates have softened moderately in 2025, with expectations for further stabilization or slight adjustments in January 2026 renewals. Primary insurers in catastrophe-prone states may experience less relief, though improved reinsurance conditions have eased segment pressures overall. Notwithstanding these gains, the homeowners’ insurance market remains vulnerable to weather-related operational volatility, necessitating continued vigilance in risk management and pricing strategies.