Insurance: Combined Ratios Look Fine, But Schedule-P Shows Releases Helped

Most of the recently reported combined ratios are positive. We commented back in March that higher gas prices and the rollout of AI projects were likely to have a favorable impact on benefit ratios and specifically cited Allstate and Progressive. Combined ratios reported in 261Q support this view.

Allstate's Q1 2026 underlying auto combined ratio of 89.5 was down 1.7 points year-over-year, likely helped by higher gas prices and fewer miles driven. Progressive's Q1 2026 severity increase was approximately 3% below the BI severity trend, which was likely helped by AI given the result was attributed to Progressive's structural advantages in frequency management and early rate action.

The exhibit below shows the 2024 industry combined ratio of 96.8—the only reading below 97.0 since 2013—against a ten-year average of exactly 100.0, which represents a genuine inflection. Loss ratios improved 5.2 points from their 2022 peak. All seven major personal auto carriers posted underwriting gains exceeding $1 billion and announced rate reductions in 40 states totaling approximately $4.6 billion in annual premium. The industry is cutting rates and returning capital on the assumption the favorable cycle is durable. 

Inflation Data: Headwinds

However, the April 2026 PCE data does not support a tailwind for combined ratios. Headline PCE re-accelerated to 3.8%, and core hit 3.3%. The macro inflation data we have been flagging does not bode well for the cost environment for insurance companies that must purchase car parts, chips, lumber, and labor to settle claims. Inflation has persisted.

In addition, recovery values on total-loss claims increase as wholesale used vehicle prices (tracked by the Manheim index) have re-accelerated modestly in 2026 after two years of deflationary correction. The bottom line is that the cost environment in which carriers set accident year 2025 loss picks is not the cost environment that will produce accident year 2025 losses. 

The improvements in combined ratios are real, but there are headwinds. Taken together, the favorable impact of higher gas prices reduced miles driven and loss costs and the implementation of AI-driven projects has reduced expenses to help improve combined ratios. 

Source: A.M. Best Company and FactSet

Sectors & Insights - FactSet 

Schedule P Data: A Source of Combined Ratio Improvement

However, in addition to the inflationary headwinds referenced above, Schedule P data available on the FactSet Workstation shows incurred loss escalation from AY2024 to AY2025, which indicates improvements have partially been driven by reserve releases.

On one-year development for accident year 2024, three of the largest personal auto carriers posted favorable results: Allstate at negative $587.8 million, Progressive Direct at negative $173.8 million, and State Farm at negative $666.5 million. The negative Schedule P development are reserve release, which improve combined ratio results.

The combined ratios look favorable today, but the Schedule P data shows the reserve releases contributed to the improvement. The April PCE re-acceleration to 3.8% means estimates for loss costs were set based on pricing that may have moved against companies that have not factored in inflationary pressure on prices. The loss cost estimates will determine the next cycle of reserve setting. If those estimates prove too low, today's combined ratio improvement reverses—and the current rate-cutting cycle will have accelerated into a headwind. 

Schedule P Exhibits

Macro Data and Impact on Insurance Earnings

Our Macro Tracker table below lists key economic data and the potential impact on insurance company earnings. The right-hand column identifies the specific potential impacts on company earnings.

Two of three macro data points are positive for insurance earnings. Market performance and employment support earnings growth; inflation remains a headwind, particularly for P&C insurers. 

Market Performance Data: Impacts Investment Income (positive trend)

The S&P 500 has maintained a solid advance YTD and recently hit a record 7,519 on May 26. The trend supports earnings for life insurers and annuity writers through higher fee income, stronger separate account values, and expanded realized gain opportunities.

Employment Data (NFP, Unemployment, Claims): Impacts Premiums (positive)

Claims edged higher for the second consecutive week—the May 23 reading of 215,000 bumped the 4-week moving average up to 209,000 from its cycle low of 202,500, yet both measures remain well below levels of concern.

April NFP came in at +115,000, down from a revised +185,000 in March. We pointed out last week that this figure marks the first payroll report to fully capture labor market reaction to the April 2 tariff implementation. The unemployment rate in both April and May held at 4.3%. 

The employment data continues to support near-term stability in employer-sponsored benefit lines, with unemployment at 4.3% limiting lapse risk in group life and disability. We have cautioned that a deceleration in NFP or modest uptick in claims would warrant monitoring. 

Inflation Data: Impact on Claims Costs (negative)

All four inflation measures accelerated in April: CPI headline reached 3.8%, core PCE rose to 3.3%, and PCE headline matched CPI at 3.8%. Of note, this is the highest Fed-preferred core reading since March 2022.

Core PPI surged to 5.2% YoY, its sixth consecutive increase, signaling continued and broadening input cost pressure on construction, repair, and trade services embedded in insurance supply chains.

For insurance carriers, the inflation environment remains a net headwind to claims costs across property, auto, and liability lines—with tariff-driven pass-through now visible in trade services inflation and energy-driven costs adding pressure on physical damage and workers' compensation reserves established prior to the Q1 2026 acceleration. 

Examples: Macro Trends and Impact on Insurance Earnings

The objective of this section, which will expand with access to additional models, is to connect macro data highlighted in this report with companies and specific line items that may be prone to macro pressure and could impact earnings.

Shown below is the earnings model for Prudential Financial. Our report highlights that a deterioration in the employment data could impact Prudential’s group business. The group life section of the InSync model is shown below. Highlighted are two specific line items that could be negatively impacted by a deteriorating labor market: earned premiums and persistency ratio.

There has been a deteriorating trend over the last four quarters. While year-over-year growth remains positive, the quarter-over-quarter trend has slowed from 10.3% to 2.8%. Also, the persistency rate over the last four quarters has declined by almost a full percentage point from 97.0% to 96.1%. Similar to the earned premium trend, while the year-over-year trend shows an increase, it has slowed in the most recent quarters. 

 Source: InSync 

AUM Through the Cycle

The table directly below presents AUM roll forward data for PRU, EQH, and HIG from 2Q21 through 1Q26, individual company net change (as a percentage of beginning AUM), and S&P 500 quarterly price return. The pattern that emerges is both consistent and actionable: AUM balances follow S&P 500 returns. 

Company AUM Roll Forward Detail

Equitable: Company/Security - Assets Under Management - EQH-US - FactSet 

Hartford: Company/Security - Assets Under Management - HIG-US 

Prudential: Company/Security - Assets Under Management - FactSet 

Finding Insurance Insight Reports

Access insurance insight reports from the FactSet Workstation using the Document Search function with this search string: "Insurance Tracker: Event of the Week".

Insurance Solutions

Deep sector data and functionality shown in this report are available through the FactSet Workstation. Learn more about FactSet insurance solutions that combine investment research, portfolio construction, and risk management in a cloud-native platform. Our comprehensive tools enable investment and actuarial teams to enhance asset modeling and capitalize on market opportunities.

This blog post is for informational purposes only. The information contained in this blog post is not legal, tax, or investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.