An impending soft market doesn’t necessarily mean that last year’s stunning profits for the property/casualty insurance industry are going to vanish in 2026, according to a research analysis who reported on industry financials last week.

David Paul, principal of ALIRT Insurance Research, expressed the view in a full-year 2025 macro review of the U.S. P/C industry published by his firm late last week, suggesting that industry fundamentals may have changed for the better in recent years—a possible signal of continued profit for 2026.

The ALIRT report revealed a 91.9 combined ratio for a cohort of P/C insurers followed by ALIRT—5.5 points lower than a 97.4 for the same composite in 2024—and the strongest underwriting performance in 20 years. Operating earnings were among the strongest since 2006, fueling a 13.9% jump in surplus for the group.

“Almost all industry analysts predict that this result is as good as it gets, at least in the current pricing cycle,” Paul wrote, referring specifically to waning price momentum in commercial lines. In the report, he presents a chart showing a history of weighted average rate changes (from CIAB, CLIPS and Marsh) by quarter dating back to fourth-quarter 2016. The numbers on his chart climb from -2% in fourth-quarter 2016 to positive low double-digits in late 2019 through 2020, ultimately drifting back down to 1.5% and 1.3% in the last two quarters of 2025.

With the overall annual industry rate increases now nearly “flat,” there is a real prospect of rate changes going negative in the near term, ushering in a “true soft market,” Paul observed.

“But this does not mean that profitability will unravel all at once—or even at all,” wrote Paul in concluding remarks of his report, which he shared with Carrier Management. “Just as rates rose over an extended period of time, but never with the outsized spikes of prior hard markets, so we may enter an equally extended though shallower softer market cycle,” he predicted. “Much will turn on whether the industry—after an historically long positive pricing cycle—has undergone a secular change in the way it conducts business.”

Paul thinks there is reason to believe this secular change has occurred, and points to carrier investments in data and technology as one indication of change.

“AI insights and agentic tools are being introduced across almost all insurance company silos….” As a result, “one can imagine more targeted (and hence profitable) underwriting/risk selection along with more productive (and hence less costly) claims practices, not to mention overall lower operating costs through improved automation,” he wrote.

David Blades, associate director of Industry Research and Analytics for AM Best, expressed a similar view as the rating agency delivered its own assessment of the industry’s remarkable underwriting performance last year. “The latest [2025] results are a manifestation of sustained disciplined underwriting and persistent pursuit of greater premium adequacy, and adherence to enterprise risk management principles,” he wrote in an article for Carrier Management summarizing AM Best’s initial tally of last year’s results.

“Even if the property/casualty industry takes a small step backward, most carriers operating within the segment are wielding fundamental positives that AM Best believes will continue throughout 2026 and create another year of positive underwriting results,” wrote Blades. In particular, he referred to the “judicious use of pricing tools”—notably the increasing use of predictive analytics and telematic in industry pricing models for personal auto and small commercial.

Paul also pointed to fragmentation of the commercial market into specialty niches as a structural change that could lessen the amplitude of pricing cycles. He reasoned that underwriters with “more targeted expertise” might hesitate to trade profitability for top-line growth over the long term.

Right now, Paul believes the P/C industry is in “excellent shape” financially. He bases his assessment on measures of financial and operational strength developed by the research firm known as ALIRT scores—scores which also incorporate assessments of holding financial flexibility and credit ratings of major rating agencies. Commercial lines composite ALIRT scores, he noted, exceeded their multi-decadal average over the past three-and-a-half years.

Previewing commentary about potential headwinds for 2026 in a more recent report last year’s results from Verisk and APCIA, Paul also reminded subscribers reading his report of the pressures that continue to demand discipline in pricing and terms.

“While it traditionally takes time for aggressive underwriting to adversely impact operating earnings and surplus, the industry remains exposed to the more immediate “known unknowns” of large natural (or man-made) catastrophe losses, economic downturns, inflation, capital market deterioration, and/or the vagaries of a newly disciplined global reinsurance market. Any combination of these factors can impact industry financial results in the more immediate term,” he wrote.

Paul and Blades both said their firms will be tracking individual insurers, the industry and external factors closely over the coming year.

“There are some fundamental positives to build on that we think are going to continue for P/C market,” Blades said in a video interview about AM Best’s recent report posted on the AM Best website. “We’ll keep an eye on all those, and what’s changing throughout the year.”