AM Best: Auto Rate Filings Drop to 3.7% in the Sharpest P&C Shift Since Pre-Pandemic

From analyzing rate filing trends across 15 states for the past 18 months, the 9.7%-to-3.7% auto rate drop is the clearest data point yet that the hard market correction cycle is ending for personal lines. Patterns we have tracked since the post-pandemic rate spike in 2022 and 2023 pointed toward this inflection, but the magnitude of the single-year deceleration exceeded what most pricing teams had built into their 2026 rate plans. AM Best's special report, published May 18, 2026, under the title "Personal Auto and Homeowners Markets' Stabilization Evident Despite a Decline in Approved Rate Changes," provides the industry-level confirmation.

The underlying story is one of the fastest rate correction cycles in modern personal lines history. Auto carriers went from aggregate underwriting losses of $17 billion in 2023 to an aggregate underwriting gain of nearly $29 billion in 2025. That $46 billion swing in two years created the financial headroom for rate deceleration, and state regulators responded by approving smaller increases. But the national averages mask significant geographic dispersion that pricing actuaries cannot afford to ignore.

The AM Best Rate Filing Data in Detail

AM Best's study draws on its proprietary State Rate Filings database, covering approved rate changes filed with state insurance departments across all 50 states and the District of Columbia. The headline figures:

Line of Business	2024 Avg. Approved Increase	2025 Avg. Approved Increase	Change (pp)
Private passenger auto	9.7%	3.7%	-6.0
Homeowners	13.5%	8.3%	-5.2

Source: AM Best Special Report, "Personal Auto and Homeowners Markets' Stabilization Evident Despite a Decline in Approved Rate Changes" (May 18, 2026).

The 6.0 percentage point decline in auto rate filings is striking because it represents a normalization back toward pre-pandemic patterns after several years of catch-up. In 2023 and 2024, carriers filed aggressively to close the gap between premiums and loss costs that had widened sharply due to rising claim frequency and severity, elevated repair costs, higher medical payments, and used vehicle price inflation. Those large filings worked: loss ratios improved materially, and by 2025, the urgency to push through double-digit increases had dissipated for most carriers in most states.

Homeowners filings moderated by 5.2 percentage points, from 13.5% to 8.3%. That is still an elevated rate level by historical standards, but the trajectory matters more than the absolute number. Double-digit homeowners rate increases were the norm across much of the 2022 through 2024 period, driven by catastrophe losses, reinsurance cost pass-throughs, and reconstruction cost inflation. The drop below 10% signals that the worst of the cost pass-through cycle may be behind the industry, at least in non-catastrophe-exposed states.

Underwriting Profit Turnaround: The Financial Foundation

The rate deceleration makes sense only in the context of the underwriting profit turnaround that preceded it. Carriers are filing smaller increases because their books are now profitable, not because loss costs have declined.

In the auto segment, the aggregate industry underwriting gain reached nearly $29 billion in 2025, according to AM Best via Insurance Journal. That figure represents an extraordinary reversal from the $17 billion aggregate underwriting loss recorded in 2023. The personal auto segment recorded its first underwriting profit since 2020 in 2024, and 2025 extended that profitability significantly. Carrier Management's projection, citing Conning and AM Best data, estimated the 2025 personal auto combined ratio at 92.7, which would rival 2020's 92.5 as the best private auto combined ratio in at least 30 years.

The loss ratio trajectory tells the granular story. AM Best's first-half 2025 direct loss ratio for personal auto came in at 61.2, down from 67.6 in first-half 2024 and a dramatic improvement from the 77.1 recorded in first-half 2023. That 15.9-point improvement over two years is the compound result of rate increases flowing through the earned premium base combined with frequency and severity trends that, while still elevated, have stabilized relative to the pandemic-era spikes.

For homeowners, the industry produced an underwriting profit exceeding $16 billion in 2025, the first such profit in five years. The homeowners loss ratio improved from 74.8 in 2023 to 65.6 in 2025, a 9.2 percentage point improvement (AM Best). Two factors beyond rate increases contributed: 2025 saw no major hurricane landfalls on U.S. soil, and the reinsurance market became more willing to deploy capacity at lower attachment points, reducing the net retained catastrophe cost for primary carriers.

Metric	2023	2024	2025
Auto aggregate underwriting gain (loss)	($17B)	~$14B	~$29B
Auto H1 direct loss ratio	77.1	67.6	61.2
Homeowners loss ratio	74.8	N/A	65.6
Homeowners underwriting profit	Loss	Loss	>$16B
All-lines P&C combined ratio	~102	~99	96.2

Sources: AM Best Special Report (May 2026); Insurance Journal (June 2026); Carrier Management/Conning projections; AM Best Market Segment Report (February 2026).

The all-lines P&C combined ratio of 96.2 for 2025 represented the strongest overall U.S. property/casualty underwriting result in 18 years, according to AM Best's February 2026 market segment report. It was the first time since the 2006-2007 cycle that the industry posted consecutive sub-97 combined ratios. Auto physical damage and auto liability combined for a decade-high net profit of $37.6 billion, the largest profit for the segment in ten years and a massive recovery from 2022, when the two coverage parts combined for a net operating loss exceeding $21 billion.

Geographic Divergence: The Four-State Problem

The national averages are useful as directional indicators, but pricing actuaries operate in state-specific regulatory environments where the divergence from the mean can be more important than the mean itself. AM Best's study identifies California, Nevada, New Jersey, and New York as states that "remained outliers in 2025" with rate filings significantly above the national average for auto insurance.

Each of these states has distinct structural factors that keep rate pressure elevated:

California operates under Proposition 103, which requires prior approval for all personal lines rate changes and limits the rating factors carriers can use. The regulatory friction creates lag: carriers that need rate increases must navigate a longer approval timeline, meaning that the catch-up cycle in California runs behind the national pattern by 12 to 18 months. Our analysis of California's catastrophe model shift covered the property side of this regulatory lag, but the same dynamic applies to auto. Carriers filing in California in 2025 were still working through rate inadequacy that carriers in file-and-use states had already corrected in 2023 and 2024.

Nevada has seen some of the steepest auto premium increases in the country. Insurify data projects Nevada auto premiums rising significantly in 2026, reflecting both the state's above-average claim severity trends and the population growth in the Las Vegas metropolitan area that has changed the risk profile of the book. Nevada did not experience the rate relief that most states saw in 2025; its carriers are still in catch-up mode.

New Jersey carries the legacy of a highly regulated auto insurance market with mandatory personal injury protection (PIP) coverage. The state's litigation environment, combined with high medical costs in the New York metropolitan area, creates persistent upward pressure on loss costs that national rate trends do not fully capture. New Jersey saw rate filings climb roughly 20% in 2025 alone, far above the 3.7% national average (Insurify; ValuePenguin).

New York faces a similar dynamic: mandatory no-fault coverage, high medical costs, and an active plaintiff's bar create a loss cost environment that diverges sharply from the national pattern. The state's Department of Financial Services (DFS) maintains prior-approval authority, which adds regulatory lag similar to California's.

For pricing actuaries, the four-state divergence creates a two-speed market. Carriers with national books must manage a portfolio where the majority of states are entering a competitive phase (rate adequacy achieved, growth opportunities emerging) while a material minority of states still require aggressive rate action. The strategic question is whether to cross-subsidize, treating the portfolio as a whole, or to manage each state as a standalone pricing unit. AM Best associate analyst Dylan Catania noted that rate filings in these outlier states will "likely reflect those positive results" from improved 2025 underwriting, suggesting the lag will narrow, but the timing remains uncertain.

Enhanced Pricing Sophistication: AM Best's AI/ML Signal

Buried in the report's attribution language is a phrase that deserves close attention from pricing actuaries. AM Best associate director David Blades stated: "The improvement experienced by U.S. homeowners' insurers has been driven by both aggressive rate increases and enhanced pricing sophistication in states that had been generating the most adverse results."

That phrase, "enhanced pricing sophistication," is AM Best's careful acknowledgment that rate increases alone do not explain the underwriting turnaround. Carriers have simultaneously deployed more granular pricing tools, including predictive models, telematics-based rating factors, and AI-assisted risk segmentation, that improve the accuracy of rate-to-risk matching within each portfolio. The result is that a carrier can achieve adequacy with a smaller rate increase when its pricing model more accurately identifies and prices individual risk profiles.

This continues a pattern we have tracked across multiple carrier earnings cycles. Progressive's ML pricing engine, which contributed to its overtaking State Farm as the largest U.S. auto insurer, operates on a fundamentally different data architecture than traditional GLM-based pricing. Our analysis of how AI pricing models behave as the cycle turns explored the hypothesis that algorithmic pricing could serve as a cycle guardrail by preventing carriers from over-correcting in either direction. The AM Best data provides early evidence supporting that hypothesis: carriers with more sophisticated pricing tools appear to be filing for smaller rate increases earlier in the cycle, having achieved adequacy more efficiently.

The NAIC's 12-state AI evaluation tool pilot adds regulatory context. As state regulators develop standardized frameworks for reviewing AI-informed rate filings, the transparency requirements will change how carriers document the relationship between model sophistication and rate level. Pricing actuaries whose models contribute to lower filed rates will need to be prepared to demonstrate that the adequacy was achieved through improved risk selection, not through under-reserving or aggressive trend assumptions.

What Rate Deceleration Means for 2027 Rate Plans

For pricing actuaries preparing 2027 rate indications, the AM Best data creates a complex planning environment. Several dynamics are in tension:

Loss cost trends have not reversed. Auto repair costs remain elevated due to advanced driver-assistance systems (ADAS) that increase per-claim severity, medical cost inflation continues to pressure bodily injury and PIP loss costs, and litigation dynamics (including third-party litigation funding) sustain upward pressure on liability claim values. AM Best's Chris Draghi has noted that "inflation created a new norm to which rates needed to be aligned, with the elevated loss severity unfavorably impacting performance as rates caught up." The rate catch-up succeeded, but the elevated loss cost baseline persists. A 3.7% rate increase may be insufficient to keep pace with underlying trend if severity continues at 5% to 7% annually.

Competitive pressure is building. When carriers see profitable results, the instinct to grow the book intensifies. S&P Global projects premium growth decelerating to 4.0% in 2026, and negative rate filings have begun surfacing in parts of the country. AM Best projects the 2026 personal auto combined ratio at 96.9, reflecting anticipated margin compression as competitive dynamics take hold. The seven major auto insurers that cleared $1 billion in Q1 2026 underwriting gain are each evaluating how much rate they can give back without sacrificing reserve adequacy.

Tariff risk introduces new uncertainty. Economic uncertainty around trade policy and potential tariff impacts on imported auto parts and building materials could accelerate severity trends in both auto and homeowners lines. A sudden increase in replacement part costs would hit the loss ratio before rate filings could respond, creating a lag-driven margin squeeze. AM Best's stable outlook on personal lines explicitly cites potential tariff impacts as a downside risk factor.

Catastrophe exposure remains front-loaded. The homeowners rate deceleration benefited from favorable 2025 cat experience: no hurricane landfalls and Q1 2026 global insured losses of $20 billion, 26% below the 10-year average (Gallagher Re). That benign cat environment is not a trend to extrapolate. Gallagher Re estimates it would take $115 billion to $125 billion in insured catastrophe losses above expected levels to meaningfully shift property pricing, but a single active hurricane season could push homeowners loss ratios back above breakeven in affected states.

Pricing actuaries should treat the 3.7% and 8.3% national averages as transitional figures rather than equilibrium rates. The hard market correction achieved adequacy; the question now is whether carriers can sustain that adequacy as competitive forces and loss cost inflation create offsetting pressures. AM Best projects the auto combined ratio deteriorating to 97.1 in 2026 and 98.9 in 2027, with a potential breach of breakeven by 2028. That trajectory, if it materializes, would mean the window for profitable growth in personal auto is narrower than many carriers' three-year plans assume.

The Reinsurance Dimension

Rate filing trends in primary personal lines do not exist in isolation from the reinsurance market. The reinsurance soft cycle analysis we published tracks how expanding capacity and lower attachment points have reduced the catastrophe cost burden on primary homeowners carriers. AM Best credited a "more willing" reinsurance market as a contributing factor to the homeowners underwriting turnaround.

For homeowners specifically, the interaction works in both directions. As primary rates decelerate and loss ratios improve, reinsurers see lower subject premiums in their proportional treaties and lower expected losses in their excess-of-loss layers. That improved experience supports further reinsurance capacity deployment, which in turn reduces primary carriers' net retained volatility and supports continued rate moderation. The virtuous cycle persists as long as catastrophe experience remains manageable.

However, Gallagher Re's April 2026 renewal data shows property catastrophe reinsurance pricing declined 15% to 25% for loss-free programs. If that reinsurance rate relief is partially passed through to primary policyholders via lower filed rates, the aggregate industry reserve position becomes more sensitive to a single large event. Reserving actuaries should stress-test their net retained positions against scenarios where reinsurance pricing reflates at the next renewal following a loss event.

Why This Matters for Pricing Actuaries

The AM Best rate filing data carries several direct implications for actuarial practice.

Rate indications must separate catch-up from trend. The 9.7% average approved increase in 2024 included a significant catch-up component for cumulative underpricing during 2021 through 2023. The 3.7% figure in 2025 is closer to an ongoing trend rate, but it likely still includes residual catch-up in lagging states. Pricing actuaries should decompose their rate indications into trend (ongoing loss cost changes), catch-up (prior inadequacy correction), and competitive adjustment (response to market position) components. Mixing these components leads to rate plans that over-correct in one direction or the other as the cycle turns.

Geographic segmentation is more important than ever. A national pricing strategy built on the 3.7% average will over-price in states where the market is competitive and under-price in the four outlier states. Carriers with the analytical infrastructure to manage state-level pricing variation will outperform those that apply national trends uniformly. The tort reform dynamics in Florida and Georgia, for example, create state-specific loss cost trajectories that diverge sharply from the national pattern.

The rate filing pipeline is a leading indicator, not a lagging one. Rate filings reflect pricing decisions made 6 to 12 months before the filing date, based on loss experience from 12 to 24 months prior. The 2025 filings already incorporate the improved 2024 results. By the time the 2026 filings reflect the strong 2025 results, competitive dynamics will have shifted further. Actuaries who wait for the filing data to confirm a trend are, by definition, behind the market. The actionable signal in the AM Best data is not the current 3.7% figure; it is the trajectory. If the deceleration continues at a similar pace, 2026 filings could approach flat or negative in some states, and rate plans need to account for that possibility.

Reserve adequacy assumptions need recalibration. The rapid swing from underwriting loss to underwriting profit creates favorable prior-year reserve development that flatters current-year results. AM Best's February 2026 market segment report noted that reserve redundancies exist in the P&C industry: Assured Research estimated redundancies exceeding $20 billion. Pricing actuaries relying on booked loss ratios that include favorable development will understate the true current-accident-year loss ratio, leading to inadequate rate indications once the favorable development exhausts itself.

Competitive intelligence must expand beyond rate monitoring. As AM Best's "pricing sophistication" language suggests, the carriers that are derating fastest are not necessarily the ones that are most aggressive; they are the ones whose models most accurately match rate to risk. The competitive threat in 2026 and 2027 comes from carriers whose AI/ML pricing engines can offer lower rates to preferred risks while maintaining or increasing rates on adverse risks, a segmentation strategy that erodes the book quality of competitors relying on less granular models. Monitoring competitors' filed rates without understanding their underlying model architecture provides an incomplete competitive picture.