Insurers steady after profitable 2024
Insurers had much to celebrate in 2024, benefiting from a strong economy and improved underwriting results. More importantly, those with diversified portfolios saw the highest investment yields since the Great Recession.
For U.S. P&C insurers, net written premiums increased by an estimated 8.7% in 2024, according to AM Best, which forecasts continued premium growth in 2025, albeit at a slower pace (see Figure 4). Insurers recorded a net underwriting profit of $22.9 billion in 2024, a vast improvement from 2023’s $24.6 billion underwriting loss.
After realizing an outstanding return on equity of 15.6% in 2024, industry ROE is expected to normalize to 6.9% in 2025, according to an earlier AM Best report. This is partly due to slowing premium growth, rising loss severity, and increasing competitive pressures. Fed actions on interest rates may also impact new money returns.
Sustained rate momentum drove better commercial lines underwriting results in 2024. Personal lines, meanwhile, dramatically improved due to enhanced risk selection, higher premiums, and more effective claims management.
The industry’s estimated combined ratio improved five points in 2024 to 96.6, according to AM Best, which projects a 98.9 combined ratio for 2025.
Outcomes, however, varied by line. In 2024, commercial auto and multiperil lines, for example, were challenged. Workers’ compensation, meanwhile, remained profitable, although net profit margins are shrinking.
Insurance buyers continue to benefit from a marketplace that is, by and large, predictable and stable, with the notable exception of third-party liability. Capacity and competition continue to fuel generally buyer-friendly conditions across most major lines, including property, workers’ compensation, directors and officers liability (D&O), and cyber insurance.
January 1, 2025, property treaty renewals were orderly. With capacity abundant, coverage did not change much and rates fell more sharply than originally anticipated.
Reinsurer behavior as recently as January 1, 2025, suggests they are not looking to shrink their casualty books, as they are likely encouraged by continued rate increases across these lines coupled with a healthy interest rate environment. Still, reinsurers remain concerned about adverse development and social inflation. Reinsurers are particularly concerned about reserving for the most recent loss years of 2020 through 2024.
“We expect 2025 to be a year of more earnings stability for the US P&C industry, against a backdrop of elevated uncertainties ranging from fiscal and monetary policy to tariffs and geopolitics,” the Swiss Re Institute said in a recent report. This uncertainty about the macroeconomic environment has led to a degree of conservatism in the industry. Underwriters are carefully managing terms and conditions, tightening their risk selection, and cautiously deploying and pricing capital. Adverse reserve development also remains a concern.
As noted in recent editions of the Lockton Market Update, insurers continue to monitor three major potential headwinds.
- SOCIAL INFLATION
- NATURAL CATASTROPHES & CLIMATE CHANGE
- GEOPOLITICS
Social inflation
Social inflation remains an ongoing discussion point on earnings calls hosted by P&C insurers. Equity analysts are seeking additional insight into this topic, including how confident senior insurance executives are that premium rates will stay ahead of loss trends and whether to expect loss reserve increases.
In January, Everest Group reported a $1.7 billion increase in prior-year loss reserves, reflecting the industry’s ongoing struggles to contain social inflation. Other insurers have cited ongoing challenges with sexual abuse and molestation and asbestos. This highlights the challenges of occurrence policies, under which liabilities can manifest far beyond the end of policy periods.
Two factors may make social inflation an even greater threat to insurers in 2025:
01
THIRD-PARTY LITIGATION FUNDING.
Outside funding continues to level the playing field and strengthen the plaintiffs’ bar. “The combination of an emboldened plaintiff bar along with, quite frankly, this jet fuel that they have in their back pocket, otherwise known as litigation funding, continues just to up the [social inflation] game,” said Rob Berkley, President and CEO of W. R. Berkley, during the insurer’s fourth-quarter earnings call.
02
INCREASINGLY UNPREDICTABLE COURTS.
Growing uncertainty around issues once thought to be settled remains a significant concern for U.S. insurers, as precedent can no longer be taken for granted. The Supreme Court’s 2024 decision to strike down the concept of “Chevron deference” exemplifies this shift. This unpredictability is also increasingly evident in jurisdictions labeled “judicial hellholes” by the American Tort Reform Foundation, where judges, according to the ATRF, “systematically apply laws and court procedures in an unfair and unbalanced manner” (see Figure 5).
One positive development in this area: On March 20, the Georgia House of Representatives passed Senate Bill 68, which aims to curb excessive litigation in the state. As of this report’s publication, the bill is now back for additional consideration by the Senate, which originally passed the bill in February.
If Senate Bill 68 is signed, as expected, by Governor Brian Kemp, Georgia would follow Florida, which enacted comprehensive tort reform in 2023. Georgia Senate Bill 69, which would require the registration of third-party litigation funders, was passed by the Senate in February but was still under consideration by the House as of this report’s publication. It remains to be seen whether additional states will ultimately pass similar legislation.
Amid this more difficult litigation environment, capacity remains a challenge for liability insurance buyers. When rates in a specific segment of the insurance market rise, an inflow of new capital typically follows. That has not been the case for the liability market over the past few years, however, as insurers increasingly question their ability to generate adequate returns in liability lines.
Social inflation is also a factor in insurers’ limiting or restricting coverage for certain risks. These may include assault and battery, sexual molestation, per- and polyfluoroalkyl substances (PFAS), and artificial intelligence.
Natural catastrophes & climate change
Globally, insured natural catastrophe losses totaled $140 billion in 2024, according to Munich Re, making it the third-costliest year on record. 2024 was also the hottest year on record, according to Munich Re, with “annual average temperatures reaching around 1.5°C above pre-industrial levels for the first time.” In the U.S., 27 weather and climate disasters totaling $1 billion or more in economic losses were recorded in 2024, according to the National Centers for Environmental Information, just under the record of 28 such events in 2023.
Insurance industry research and advisory firm Dowling & Partners has pegged potential losses from the recent Southern California wildfires at between $30 billion and $50 billion. Although the fires impacted personal lines to a greater degree than commercial lines, an active hurricane season could make 2025 a game-changing year for insurers.
“Fifteen years ago, adjusting for inflation, $100 billion was considered the benchmark for an outsized [catastrophe] year,” said Peter Zaffino, Chairman and CEO of AIG, during the insurer’s fourth-quarter earnings call. “Assuming we have an active but not abnormal wind season, which is realistic given the 2024 hurricane season experience… 2025 could be a year of more than $200 billion of insured catastrophe losses.
“This could recalibrate the entire industry,” Zaffino concluded.
Geopolitics
A recent S&P Global report may have said it best: “A world ordered for decades by globalization and geoeconomics has quickly become a world grounded in geopolitical risk.” Among the many potential trouble spots for multinational insurers and businesses are:
RUSSIA AND UKRAINE.
In February, Trump administration officials began talks with Russia about a potential end to the war with Ukraine, but no concrete progress appears to have been made as of this writing. Notably, U.S. officials excluded the European Union from these negotiations, heightening tensions with America’s traditional allies. President Trump and Ukraine President Volodymyr Zelenskyy also engaged in a public spat regarding the war in late February.
A POTENTIAL GLOBAL TRADE WAR.
The rising threat of tariffs has created friction between the U.S. and key trading partners, including Canada, Mexico, China, and the European Union. The potential for retaliatory measures has raised concerns over free trade and supply chain disruptions.
THE MIDDLE EAST.
With the recent ceasefire agreement between Israel and Hamas appearing to have ended in mid-March, tensions will remain strained in the region.
For multinational businesses, worries about higher costs, uncertainty in long-term planning, and potential shifts in sourcing strategies are growing. Policymakers also fear that escalating trade tensions could undermine the economic and competitive benefits of existing agreements. These include the United States–Mexico–Canada Agreement, reached in 2018 as a replacement for the North American Free Trade Agreement.
Domestically, Republicans and Democrats continue to argue over immigration, taxes, spending, and regulation. At best, this is a recipe for slow progress around some fundamental challenges. At worst, it raises the political temperature and the potential for civil unrest.
