AM Best Upgrades US Homeowners Insurance Outlook to Stable
The influential rating agency cited improved pricing, underwriting discipline, and moderating catastrophe losses as key drivers for its revised outlook.
The U.S. homeowners insurance sector, recently battered by severe weather events and persistent inflation, has received a significant vote of confidence from credit rating agency AM Best, which has revised its market segment outlook to Stable from Negative.
The upgrade, announced Monday, signals a potential turning point for an industry that has struggled with profitability amid soaring catastrophe losses and rising rebuilding costs. AM Best attributed the improved forecast to aggressive premium hikes taking effect, more disciplined underwriting strategies, and a stabilization in the volatile reinsurance market.
“While significant challenges remain, the segment has demonstrated resilience,” AM Best stated in its report. The agency noted that many carriers have made substantial progress in closing the gap between rates and the rising costs of claims, a critical step toward sustained profitability.
This shift follows a turbulent period that led to the previous 'Negative' outlook. According to an AM Best press release, the first half of 2025 was marked by elevated catastrophe losses from events like tornado outbreaks and severe convective storms, which eroded capital for some insurers, particularly those in high-risk regions.
In response, major insurers have been implementing significant operational changes. Companies like The Allstate Corporation (NYSE: ALL) and The Travelers Companies, Inc. (NYSE: TRV) have been actively seeking substantial rate increases in numerous states. In addition to pricing adjustments, insurers have been tightening underwriting criteria, reducing their exposure in catastrophe-prone areas such as California and Florida, and leveraging technology and data analytics to refine their risk models.
These measures appear to be bearing fruit. The industry has benefited from a relatively quiet third quarter for hurricane activity, providing a much-needed respite and allowing carriers to rebuild their capital buffers. This, combined with the cumulative effect of rate hikes, has improved underwriting margins across the sector.
The improved outlook reflects a more stable, though still cautious, operating environment. Major players in the space have shown strong market performance, with Allstate boasting a market capitalization of over $56 billion and Travelers exceeding $65 billion. Both companies have seen their stock prices trade near 52-week highs, suggesting investor confidence is returning to the sector.
However, AM Best cautioned that the industry is not entirely in the clear. The long-term challenges of climate change, which influences the frequency and severity of weather events, remain a primary concern. Regulatory resistance to necessary rate increases in certain states and the ongoing unpredictability of secondary perils like wildfires and severe storms continue to pose significant risks.
Looking forward, the stability of the sector will depend on insurers' ability to maintain pricing discipline and effectively manage catastrophic risk in a changing climate. The current upgrade, however, provides a clear signal that the strategic adjustments made over the past year are steering the industry toward more solid footing.