AM Best's Decade-High P&C Profit Tests Reserve Durability

The U.S. property/casualty industry closed 2025 with a 92.9 combined ratio and $60.9 billion in net underwriting gains, its strongest result in a decade (AM Best, July 2026). Favorable prior-year reserve development contributed $18.1 billion to that total, and independent reserve tracking from Assured Research shows the gain concentrated almost entirely in personal auto liability, with the casualty book still $12.5 billion short.

That split, a decade-best headline built on a bifurcated reserve position, is the story underneath AM Best's July 13, 2026 report. Personal auto liability reserves swung from a modest $1.9 billion redundancy at year-end 2024 to a $12.0 billion redundancy at year-end 2025, according to Assured Research's independent re-estimation, while other liability occurrence, the general liability and umbrella book most exposed to social inflation, remains $12.5 billion deficient even after two consecutive years of strengthening (Assured Research, March 2026). AM Best's own actuaries reached a more conservative aggregate conclusion: their re-estimation of year-end 2024 reserves, net of the statutory discount, still shows a $9 billion industry-wide deficiency, roughly $10 billion better than originally projected but a deficiency nonetheless (AM Best, July 2026). Two credible reserve views, one headline number, and a line-level story that looks nothing like it.

The Headline Number Behind the Decade-High Combined Ratio

AM Best's Best's Market Segment Report, titled "2025 P/C Snapshot: Strongest Performance in a Decade Showcases Resilience," pegs the industry combined ratio at 92.9 for 2025, improved 3.7 points from 96.6 in 2024 (AM Best, July 13, 2026). Net underwriting gain nearly tripled to $60.9 billion from $22.1 billion a year earlier. Net premiums written rose 4.7% to $940.7 billion, premiums earned grew 6.1% to $923.3 billion, and losses and loss adjustment expenses totaled $615.7 billion against $241.2 billion of underwriting expenses, up 7.1% (AM Best, July 2026). Catastrophe losses added 7.6 points to the combined ratio, down from 8.8 points in 2024, a milder accident year that gave underlying underwriting results more room to show through the calendar-year figure.

Net investment income climbed 9.1% to $91.4 billion, and pretax operating income jumped 43.2% to $153.1 billion. Net income itself fell 9.5% to $150.9 billion, the one figure moving the wrong direction, driven entirely by a 71.6% decline in net realized capital gains tied to a combined $60 billion drop across three Berkshire Hathaway subsidiaries (AM Best, July 2026). Strip out that capital-markets effect and the operating story is unambiguous: policyholder surplus grew 11.4% to $1.19 trillion, a $122.9 billion year-over-year gain that leaves the industry with a substantial cushion heading into 2026.

Personal auto liability drove the improvement most directly. Underwriting income more than doubled to $28.9 billion from $13.8 billion, and homeowners multiperil swung to a $16.8 billion underwriting gain from a $1.5 billion loss, absorbing early-2025 California wildfire losses along the way with incurred net losses down 7.1% (AM Best, July 2026). David Blades, associate director at AM Best, attributed the shift to underwriting discipline rather than a benign accident year: "Insurers underwriting both personal auto and homeowners' lines have reaped the benefits of technology and data analytics" (AM Best, July 2026). Personal lines as a whole cleared more than $45 billion in underwriting profit for 2025; commercial lines added over $19 billion. Combined, the industry booked $84 billion in underwriting gains across 2024 and 2025, reversing $51 billion in cumulative underwriting losses recorded from 2021 through 2023.

Casualty Lines Did Not Turn the Same Way

Commercial auto and other liability occurrence did not participate in the recovery on the same terms. Commercial auto's underwriting loss narrowed to $1.9 billion from $4.9 billion, but that improvement arrived alongside $2.0 billion in new reserve deficiencies added during 2025, concentrated in the 2023 and 2024 accident years (AM Best, July 2026). Other liability occurrence, the line carrying the bulk of umbrella, excess, and general liability social-inflation exposure, improved to an $11 billion underwriting loss from $13.7 billion, and its combined ratio fell to 114.7 from 120.3, still the worst-performing major line in the book, with net losses incurred approaching $50 billion. Christopher Graham, senior industry analyst at AM Best, summarized the split directly: "Casualty lines, specifically commercial auto liability and other liability, remain pressured by adverse development and elevated claims severity" (AM Best, July 2026).

Workers' compensation sits in between the two extremes. Assured Research's re-estimation finds the line still materially redundant at year-end 2025, though the firm did not attach a specific dollar figure to the position (Assured Research, March 2026). That redundancy has been shrinking for several years as claim-severity trend accelerates and medical cost inflation erodes the buffer built during the line's mid-2010s hard market, the same erosion NCCI has separately flagged as a factor turning the workers' comp pricing cycle. Workers' comp and personal auto liability sit on opposite ends of a spectrum from other liability occurrence: both remain net redundant overall, but the redundancy in workers' comp is thinning while the redundancy in personal auto is building, which means the two lines are headed in different directions even though both currently post a favorable reserve position.

The Accident-Year Number Underneath the Headline

Reserve development explains part of why the calendar-year combined ratio looks so much better than the underlying book. AM Best's accident-year combined ratio, which strips out the $18.1 billion of favorable prior-year reserve development booked in 2025, came in at 94.9, two full points above the 92.9 calendar-year figure (AM Best, July 2026). A two-point gap between accident-year and calendar-year results is not unusual on its own; the industry has now reported 19 consecutive years of favorable one-year reserve development, and AM Best's own re-estimation of year-end 2024 reserves found the aggregate position had improved to a $9 billion deficiency, including the statutory discount, nearly $10 billion better than the agency had originally projected (AM Best, July 2026). What changed in 2025 is not that the streak continued. It is where the development came from.

Two Reserve Views, One Number, Different Lines

Assured Research, the independent actuarial research firm run by William Wilt, a Fellow of the Casualty Actuarial Society, reached a more favorable aggregate conclusion in a report published in mid-March 2026: an estimated $20.7 billion industry-wide reserve redundancy at year-end 2025, up from a modest $2.0 billion redundancy at year-end 2024, a tenfold increase in twelve months (Assured Research, March 2026). The two estimates are not measuring identical things. AM Best's figure is a rating-agency re-estimation of year-end 2024 statutory reserves net of discount; Assured Research's is a bottom-up, line-by-line reconstruction using Schedule P triangles through year-end 2025. The headline discrepancy, deficiency versus redundancy, matters less than what both views agree on underneath: the improvement is concentrated in short-tail personal lines, and the long-tail casualty book has not caught up.

Line of business	Year-end 2024 position	Year-end 2025 position
Private passenger auto liability	$1.9B redundancy	$12.0B redundancy
Other liability (occurrence)	$15.0B deficiency	$12.5B deficiency
Industry total (all lines)	$2.0B redundancy	$20.7B redundancy

Source: Assured Research, March 2026.

Why Personal Auto Is Releasing While Casualty Still Owes

The mechanism is a familiar one to reserving actuaries who lived through the 2021-2023 severity shock. Personal auto liability carried conservative initial loss picks through that period, as used-vehicle prices, medical cost trend, and litigation costs all moved faster than pricing could follow. A carrier booking accident year 2023 personal auto liability assumed continued acceleration in bodily injury severity when it selected its initial loss development factors; as that accident year matured through 2024 and 2025, paid losses came in below the conservative pick, and the resulting redundancy released into calendar-year income two to three years later, exactly the lag showing up in the accident year 2022 through 2024 figures now. Assured Research's data shows $5.0 billion of the $12.0 billion year-end 2025 redundancy sitting in those three accident years alone, with $3.0 billion in accident year 2024 by itself, and another $6.7 billion redundant in the still-green 2025 accident year (Assured Research, March 2026). Those are the vintages that absorbed double-digit rate increases through 2023 and 2024; the redundancy is the release of margin that pricing built in and claims did not need. Auto physical damage tells a parallel story from the frequency side, with a booked loss ratio of 55.7 for accident year 2025, near COVID-era lows (Assured Research, March 2026).

Other liability occurrence has not had that luxury. Of the $12.5 billion deficiency Assured Research estimates at year-end 2025, $10.5 billion sits in accident years 2021 through 2024, the vintages most exposed to nuclear verdicts and litigation funding, while accident year 2025 itself carries only a $200 million deficiency (Assured Research, March 2026). Long-tail casualty claims take years longer to develop than personal auto claims, so a clean current accident year says little about whether the older vintages are adequately reserved. The 19-year streak of favorable industry development, read at the line level, is now overwhelmingly a personal-lines phenomenon rather than evidence that casualty reserves have caught up to social inflation.

The Reserving and Pricing Read

For appointed actuaries preparing statements of actuarial opinion, the practical implication is disaggregation. Citing 19 consecutive years of favorable industry development as evidence that a commercial casualty book is conservatively reserved overstates what the data supports once personal auto's contribution is removed. AM Best's own $2.0 billion in new commercial auto reserve deficiencies added during 2025, layered onto an already-weak position, argues for continued strengthening in that line even as the headline combined ratio hits a decade low. Pricing actuaries selecting increased limits factors and trend assumptions for general liability and umbrella face the same asymmetry: personal auto's favorable development signals that rate adequacy has been restored, while other liability's persistent deficiency in the 2021-2024 vintages signals that loss trend selections from that period still understated severity.

The capital cushion is real. Surplus of $1.19 trillion, up $122.9 billion for the year, gives carriers room to absorb continued casualty strengthening without solvency stress. But the composition of the 2025 result argues against extrapolating a 92.9 combined ratio forward. AM Best's February 2026 outlook projected the 2026 combined ratio rising to 96.9, with commercial lines alone reaching 96.3, as premium growth slows to 4.0% from 6.1% and rate increases fail to keep pace with loss cost inflation (AM Best, February 2026). Jacqalene Lentz, senior director at AM Best, said the agency "expects lower net premiums written growth in 2026 and tighter margins" across the industry, while associate director Anthony Molinaro flagged commercial lines running "a couple points higher" in 2026 even as the segment stays profitable (AM Best, February 2026). If personal auto's reserve releases fade as the 2022-2024 hard-market vintages fully mature, and casualty continues absorbing deficiencies still working through the 2021-2024 accident years, 2026's combined ratio has more structural reasons to normalize higher than the decade-best 2025 number suggests.

The decade-high headline is genuine. Personal auto and homeowners underwriting improved on real rate adequacy and claims-handling gains, not accounting. But the reserve position propping up the calendar-year number belongs almost entirely to short-tail lines that have already re-priced, while the casualty book carrying the industry's longest-duration liabilities is still working through vintages several rate cycles old. Reading the 92.9 combined ratio as a signal of broad-based reserve adequacy skips past the line-level data that produced it.

Further Reading

• P&C Q1 2026 Combined Ratio: Reading the Reserve Quality Signal - the framework for separating catastrophe timing, current-year margin, and prior-year development in a single quarter's combined ratio.
• A Reserve Adequacy Playbook for the P&C Soft Market - how reserving actuaries should stress-test favorable development as pricing cycles turn.
• NCCI Flags Eroding Workers' Comp Reserve Redundancy as the Pricing Cycle Turns - the same short-tail-versus-long-tail reserve dynamic playing out in workers' compensation.
• Aon Reframes Social Inflation as Litigation Abuse in Its Casualty Reserve Outlook - the industry vocabulary shift behind the other-liability-occurrence deficiency this article quantifies.
• Nuclear Verdict Severity Forces a Repricing of Umbrella and Excess ILFs - the increased limits factor mechanics driving the accident years 2021-2024 deficiency in other liability occurrence.
• Machine Learning Jury Award Models Reach Commercial Auto Reserving - how carriers are trying to get ahead of the severity trend behind the commercial auto reserve deficiencies AM Best flagged for 2025.