Driven by California’s record-setting wildfires in January and tornado outbreaks across other regions, the U.S. homeowners’ insurance segment reported its worst first quarter loss ratio in five years, according to a new report from AM Best.

The direct incurred loss ratio for the U.S. homeowners’ insurers spiked to 102.1% in the first quarter of 2025, which is thirty percentage points higher than any first quarter since 2021. A confluence of factors heightened the impact of the California fires, including drought conditions, dry vegetation, low humidity and hurricane-force Santa Ana winds. It also underscored that this peril is no longer confined to wildfire season in the typically dryer summer months.

According to the report, there has been a tremendous variance in homeowners’ insurance results on a quarter-over-quarter and annual basis, seemingly due to changing climatic conditions such as rising temperatures, shifting precipitation patterns, increased frequency and intensity of extreme weather events such as heat waves and heavy rainfall, and rising sea levels.

Despite the tumultuous start to 2025, the $2.2 billion underwriting loss reported for year-end 2024 marked the smallest during the 2017 to 2024 period.

“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 favorable underwriting results for the U.S. homeowners’ insurance line rather than having the marked improvement in 2024 prove to be a one-year phenomenon,” said David Blades, associate director, AM Best.

According to the report, total U.S. homeowners’ direct premiums written increased by 10.7% in the first quarter of 2025 compared with the same period in 2024. In each of the past four years, the segment posted double-digit direct premium increases, and in 2025, the first quarter premium was almost $15 billion higher than it was just four years prior in 2021. This current 2025 Atlantic hurricane season that stretches through November 30 will provide another test for how well insurers have underwritten the risks that remain in their portfolios.

Another headwind includes the erosion of the capabilities previously offered by the National Oceanic and Atmospheric Administration, which could create a critical gap for insurers, agents, brokers and policyholders that rely on catastrophe data and information that is instrumental in pricing, reinsurance planning, and identifying geographic exposure trends. “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,” said Maurice Thomas, senior financial analyst, AM Best.

To access the full copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=356453.

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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