According to a newly released analysis by AM Best, a credit rating agency and data provider specialising in the insurance industry, the US homeowners insurance segment experienced significant financial pressure in the first quarter of 2025.
Following a year of marked improvement in 2024, the segment encountered its most challenging first quarter in five years.
January’s severe wildfires in California, combined with damaging tornadoes across several other states, resulted in a direct incurred loss ratio of 102.1%. This figure was 30 percentage points higher than any other first quarter since 2021, signalling a sharp reversal of momentum.
AM Best attributes the surge in wildfire losses to a combination of severe drought, dry vegetation, low humidity, and intense Santa Ana winds—factors that extended the traditional wildfire season into winter.
The agency notes that these fires, particularly those that struck the Los Angeles metropolitan area, illustrate that such disasters are no longer limited to warmer months.
Meanwhile, widespread tornado activity in the Midwest, South, and Plains regions led to billions of dollars in insured losses, further damaging first quarter underwriting results.
Despite the rocky start to 2025, AM Best points out that 2024 ended with a net underwriting loss of $2.2 billion for the homeowners line—still a significant improvement over the $15.2 billion loss in 2023. This figure marked the lowest net underwriting loss between 2017 and 2024.
AM Best credits this turnaround in large part to strategic changes in pricing, underwriting, and risk selection, aided by increasingly sophisticated analytics and modelling tools.
The report underscores that homeowners insurers are navigating increasingly unpredictable weather patterns. According to AM Best, variations in quarterly and annual results are being driven largely by shifting climate conditions, including rising temperatures, erratic precipitation, and more frequent and intense storms. These dynamics have led to wide swings in financial performance across regions and years.
California, for example, has seen a growing number of billion-dollar weather events. From 1980 to 2023, the state averaged one such event per year. That number jumped to 1.8 annually from 2019 through 2023, based on data cited by AM Best.
To better address wildfire risk, California has begun requiring catastrophe models to incorporate the impact of mitigation efforts made by homeowners and communities.
AM Best notes that a wildfire-specific catastrophe model currently under state review may help insurers better price and manage this hazard. While these regulatory changes aim to create a more sustainable insurance market in the state, AM Best cautions that any long-term improvement will hinge on the affordability and availability of coverage.
Meanwhile, premium growth has continued at a rapid pace. AM Best reports that direct premiums written (DPW) for U.S. homeowners insurers grew by 10.7% in the first quarter of 2025 compared to the same period a year earlier. This growth continues a four-year streak of double-digit quarterly increases, with total DPW in Q1 2025 nearly $15 billion higher than in Q1 2021.
However, AM Best highlights that much of this growth is being driven by insurers’ need to keep pace with inflation, rising repair costs, and greater exposure in high-risk areas.
The company also notes that the ongoing 2025 Atlantic hurricane season, running through the end of November, will serve as a key indicator of how well insurers have aligned their underwriting practices with current climate conditions.
In particular, AM Best draws attention to flash flooding in Texas over the July 4th weekend, which caused an estimated $18–22 billion in economic damage. While most homeowners policies do not cover flood losses, the event underscores the type of exposure challenges insurers face in a shifting climate.
AM Best observes a growing disparity in homeowners insurance results across states, with a number of regions continuing to report poor performance.
In 2024, 10 states posted direct combined ratios above 100%, down from 17 in 2023 but still elevated compared to historical norms. These states include several with long-standing challenges, such as Nebraska, Georgia, and North Carolina, along with others experiencing new or worsening risks from secondary perils like wind and fire.
The agency emphasises that shifting population patterns have added complexity to the market. As AM Best has previously noted, migration into high-risk regions—including wildfire-prone western states and hurricane-exposed Gulf Coast areas—has contributed to increased insured losses.
Between 2010 and 2020, six states—Texas, Florida, California, Georgia, Washington, and North Carolina—accounted for more than half of all U.S. population growth. This population growth, coupled with a trend toward smaller household sizes, has led to an expansion in housing development and, in turn, a rise in insured value across high-risk zones.
While leading insurers helped drive improvement in 2024, AM Best’s latest analysis reveals that 2025’s early setbacks threaten to erode those gains. Among the top 20 carriers by annual DPW in 2024, 19 posted improved net loss and loss adjustment expense ratios compared to the prior year. These firms, including State Farm and Allstate, continued to raise rates and apply more refined underwriting practices.
AM Best notes that the same 20 companies occupied the top tier in both 2023 and 2024, showing market concentration remains high. Florida’s Citizens Property Insurance Corporation, a state-run insurer of last resort, dropped in rank as it reduced policy volume in line with its depopulation strategy.
AM Best warns that a significant emerging concern is the weakening of publicly available catastrophe data, especially from the National Oceanic and Atmospheric Administration (NOAA). In May 2025, NOAA ceased updates to its publicly accessible disaster loss database, which had tracked billion-dollar events since 1980.
Although the historical data remains available, the lack of updates means recent events—including the January wildfires and March tornadoes—will not be recorded. AM Best views this change as a critical loss for insurers, agents, brokers, and policyholders who depend on the data for pricing, reinsurance planning, and exposure analysis.
Without these updates, the industry is expected to rely more heavily on private modelling firms. While these tools are valuable, AM Best cautions that the absence of a centralised and objective federal database could hinder the industry’s ability to accurately assess risk and price coverage.
The agency also reports that the National Weather Service, a sub-agency of NOAA, is facing deep budget and staffing cuts that may further limit the availability of reliable weather data.
“The increase in direct premium in the first quarter of 2025 shows that insurers are continuing to pursue adequate premiums in order to establish more favourable underwriting results for the US homeowners’ insurance line rather than having the marked improvement in 2024 prove to be a one-year phenomenon,” commented David Blades, Associate Director, AM Best.
“The increased frequency and severity of extreme weather events, including the occurrence of “off-season” storms, makes it difficult for insurers to accurately assess and price risk using traditional models,” added Maurice Thomas, Senior Financial Analyst, AM Best.
In AM Best’s view, the erosion of trusted public data sources could disrupt actuarial models and risk projections, especially for properties exposed to secondary perils.
Given the growing frequency and intensity of events such as floods, wildfires, and tornadoes, the need for accurate and consistent data is becoming more urgent. The loss of NOAA’s up-to-date disaster records may increase pressure on insurers to devote greater resources to internal data capabilities and proprietary modelling tools.
AM Best concludes that while the US homeowners insurance market made meaningful strides in 2024, the challenges of 2025 have already begun to test the segment’s resilience. Sustained progress will depend on insurers’ ability to adapt to shifting weather patterns, regulatory changes, and data constraints—all while maintaining pricing discipline and underwriting rigor in an increasingly complex environment.
