The U.S. property & casualty insurance industry recorded a $16.3 billion net underwriting gain in the first three months of 2026, compared with a $1.0 billion underwriting loss in the same period of 2025, according to AM Best’s first-look report on three-month U.S. P&C financial results.
The reversal was driven by a 9.3% decline in incurred losses and loss adjustment expenses (LAE), a 3.9% increase in net earned premiums, and a dramatic reduction in catastrophe losses following the January 2025 California wildfires, which had weighed heavily on the prior-year period.
Catastrophe Losses and Combined Ratio
Catastrophe losses fell sharply year over year, contributing 4.2 points to the combined ratio in the first quarter of 2026, down from an estimated 14.5 points in the same period of 2025. The industry’s reported combined ratio improved seven points to 92.0. Excluding $10.9 billion of favorable reserve development recorded during the quarter, AM Best calculated an accident-year combined ratio of 96.6.
The normalized combined ratio stood at 87.8, up 3.3 points from the prior-year normalized figure of 84.5. AM Best noted that an increased in policyholder dividends — predominantly attributable to $5 billion in dividends at State Farm — pushed the P&C sector’s policyholder dividend ratio to 2.4 from 0.3 points on the combined ratio.
On the loss side, the pure loss ratio fell 9.1 points to 55.6, while the LAE ratio improved modestly to 8.8. The underwriting expense ratio edged up slightly to 25.3.
Net premiums written grew 2.9% to $250.9 billion in Q1, up from $243.8 million in the year-earlier period, the report said.
Investment Income and Net Income
Strong underwriting results combined with investment income growth to produce a near-doubling of pre-tax operating income. Net investment income earned rose 10.3% to $22.9 billion, and pre-tax operating income climbed 97.0% to $39.5 billion compared with the first quarter of 2025.
Net realized capital gains also contributed, rising 141.5% to $8.7 billion. Together, these factors pushed industry net income up 107.7% to $41.8 billion. The after-tax return on surplus stood at 3.3% for the quarter, compared with 1.8% in the prior-year period.
Catastrophe losses for the quarter totaled $10.0 billion on a net basis, down sharply from $33.3 billion in the first quarter of 2025. AM Best defines a catastrophe loss as an industry event causing $25 million or more in insured losses.
Surplus and Balance Sheet
Policyholder surplus grew to $1.258 trillion at the end of the first quarter of 2026, up 2.2% from the $1.231 trillion recorded at year-end 2025. The $27.0 billion net increase in surplus reflected $41.8 billion of net income and $775.7 million of contributed capital, partially offset by $10.3 billion in stockholder dividends, $4.9 billion in unrealized capital losses, and other surplus charges.
Total invested assets reached $2.719 trillion, up from $2.667 trillion at year-end 2025. Bonds remained the largest asset category at $1.509 trillion, followed by preferred and common stock at $670.0 billion and cash and short-term investments at $300.6 billion. Total loss and LAE reserves climbed to $1.021 trillion, up from $1.006 trillion at year-end 2025.
The data underlying AM Best’s first-look report were drawn from statutory statements covering companies that account for an estimated 97% of total industry net premiums written and 97% of policyholder surplus, with statements received as of June 1, 2026.
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