US Commercial Lines Insurers Navigate Mixed Results With Strong Capital Position: AM Best

AM Best has maintained its “stable” outlook for the U.S. commercial lines insurance segment, citing strong aggregate performance that includes operating ratios in the low-to-mid 80% range and returns on capital of approximately 10% through the first three quarters of 2025, according to the ratings agency.

“The stable outlook on this commercial segment reflects our expectation that the U.S. commercial lines segment will remain profitable in aggregate and will be resilient in the face of near- and longer-term challenges,” said Alan Murray, director at AM Best.

Performance Diverges Across Business Lines

The overall strength of commercial lines results masks significant variability among individual business segments, AM Best said.

Workers’ compensation continues to anchor the segment’s performance with a combined ratio near 90% for the past five years, bolstered by sustained favorable reserve development and lower claims frequency despite regulatory pressure on pricing.

Commercial property has also demonstrated resilience, posting an 88% combined ratio in 2024 and proving far less susceptible to catastrophe losses than personal lines homeowners insurance. For the first time since 2017, commercial property rates declined through the first half of 2025, reflecting increased capacity and a softer reinsurance market, the report noted.

In stark contrast, general liability suffered through a particularly difficult 2024 with a combined ratio of 120%, while commercial auto has consistently exceeded 100% despite persistent rate increases in the high-single-digit percentage range. Premium rates for most major commercial lines continued rising through mid-to-late 2025, though at a slower pace than the multi-year peak reached in late 2020 and early 2021.

Investment income has emerged as a critical offset to moderating rate increases, according to AM Best. Net investment income for the commercial lines composite reached 4.6% in the first half of 2025, representing an approximately 8 percentage point improvement over the prior year and significantly exceeding premium growth trends.

This development particularly benefits longer-tailed casualty lines like workers’ compensation, general liability and commercial auto liability, which hold the vast majority of segment reserves, the report noted.

Social Inflation and Nuclear Verdicts Test Casualty Markets

The plaintiffs’ bar continues deploying aggressive litigation tactics that are driving elevated claim severity across multiple lines of business, AM Best said. These include “anchoring,” where elevated claim values are suggested to juries to drive up awards, and “reptilian strategies” designed to make juries dislike defendants strongly enough to award excessive damages. Third-party litigation funding has become a significant factor in mass tort litigation, contributing to lengthened settlement periods and costly verdicts, the report noted.

Nuclear verdicts—concentrated primarily in product liability, intellectual property and motor vehicle cases—increasingly pierce the limits of primary coverages and trigger claims on excess and umbrella policies. This dynamic has prompted carriers to reduce capacity and limits while driving firmer umbrella market conditions, with pricing increases continuing in the 10% range.

Commercial auto faces a perfect storm of headwinds: higher repair costs, shortages of experienced drivers, proliferation of distracted driving issues, and verdict inflation, according to the report.

Meanwhile, cyber insurance has become a fixture of commercial insurance programs as data breaches and cyber-attacks continue rising in frequency and cost.

Emerging exposures including climate-related casualty litigation, mental health issues caused by technology, and forever chemicals (PFAS) remain on liability insurers’ radar as potential sources of future adverse development.

Economic inflation, though well below pandemic-period highs, continues pushing claims costs higher through elevated prices for raw materials, labor and supply chain disruptions. U.S. trade tariffs and global counter-tariffs are creating additional uncertainty for organizations with complex supply chains.

Technology Investments and Disciplined Selection Support Stability

“Commercial insurers are leveraging technology and innovative products, including artificial intelligence, to enhance underwriting and pricing decisions,” said Carlos Wong-Fupuy, senior director at AM Best. “At the same time, a more direct focus on loss control and claims management is resulting in lower claims frequency and severity.”

Key focus areas include predictive analytics using telematics and behavior-based data to enable real-time risk-adjusted pricing, as well as leveraging big data and AI to identify nuanced relationships between risk and return.

Speed of response has become essential in the highly commoditized small- and medium-sized risk marketplace, where streamlined, frictionless processing matters to agents and insurers. Embedded insurance solutions and distribution innovations are seeing significant growth, while insurtech solutions offering risk mitigation capabilities and insightful data sources are gaining traction.

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