U.S. private passenger nonstandard auto insurers have kept positive momentum going in first-half 2025 with net underwriting income of $65 million, nearly four times the amount recorded in the same prior-year period, according to a new AM Best report.

According to the Best’s Market Segment Report, “Nonstandard Auto: Major Improvements Following Weak Results Expected to Persist,” AM Best’s composite of nonstandard auto insurers ended 2024 with a full-year net underwriting total of $177 million, which also was a significant improvement from each of the preceding three years when combined underwriting losses totaled more than $2.5 billion. Additionally, after recording a combined ratio of 98.0 in 2024, the segment’s first-half 2025 combined ratio improved to 96.6.

“Through the first half of 2024, the segment’s underwriting income was $17 million. It then grew by 10 times that amount by the end of the year. While a similar level of increased underwriting income growth may not be a reasonable expectation in the second half of 2025, the improved first half does portend another full year of enhanced underwriting income as the application of risk selection, underwriting initiatives and the push for price adequacy take further hold,” said Alexander Winant, associate analyst, AM Best.

Nonstandard auto market direct premiums written (DPW) have risen over the past several years on a quarterly basis to combat rising loss costs attributable to greater loss severity impacting liability and auto physical damage claims. In the first and second quarters of 2025, the premium increases from the same quarters in 2024 were smaller, at 10.5% and 3.8%, respectively, than the much larger increases of 27.6% and 24.9% in the first and second quarters of 2024. Nevertheless, the composite reached its highest quarterly DPW total of $7.7 billion after initially surpassing the $7 billion plateau for the first time in the first quarter of 2024.

“The improved combined and loss ratios suggest insurers have raised premiums enough to better offset claim costs. In the short term, more modest price increases could still be warranted to sufficiently offset auto physical damage claim costs to replace auto parts and technology in addition to liability costs associated with increased attorney involvement in claims and uncertainty surrounding tariffs,” said David Blades, associate director, Industry Research and Analytics, AM Best.

Historically, the inherent complexities of insuring higher-risk policyholders have contributed to nonstandard insurers’ underwriting results being worse than results for standard personal auto insurers. In addition, according to the report, the nonstandard auto segment consistently has demonstrated an underwriting expense ratio several points higher than that of the standard personal auto composite, tied to nonstandard business being transaction-heavy due to issues related to frequent cancellations, non-payments and more requirements for due diligence. This places more pressure on the operational efficiency of the insurer.

“Scale is crucial for nonstandard auto insurers, allowing business costs to be spread across a larger revenue base,” said Blades. “Smaller nonstandard auto insurers generally operate at a disadvantage owing to high fixed costs, but the greater scale of the nonstandard auto companies that have been acquired by national carriers in recent years have helped them overcome this disadvantage.”

To access the full copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=359903.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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