The US property and casualty (P&C) insurance sector is expected to achieve earnings stability in 2025, according to insights from Swiss Re.
Return on equity (ROE) is projected to remain at approximately 10% through 2025 and 2026, driven by steady underwriting performance and modestly higher investment income. This follows four years of around 10% premium growth, which have helped insurers recover from elevated claims costs that began in 2021.
Swiss Re anticipates that premium growth will slow, with a forecasted 5% increase in 2025 and 4% in 2026, compared to nearly 10% in 2024. As insurers approach rate adequacy, the industry is shifting its focus toward growth, particularly in personal lines.
Premium growth is expected to align more closely with long-term averages. Factors such as tariffs and reduced migration may exert upward pressure on goods prices and wage inflation, prompting further rate adjustments.
Swiss Re forecasts the US P&C industry’s ROE to stabilize at 10% in 2025, slightly improving from the 9.5% reported for the first nine months of 2024. This stability follows significant improvements in personal lines profitability in 2024, supported by easing inflation and slowing claims cost growth.
Industry net premiums earned rose 14% year-over-year through September 2024, while net claims incurred increased 5%. Investment income also grew more than 20% during this period, reflecting higher yields.
Underwriting improvements are expected to decelerate, with competition in private passenger auto insurance contributing to slower premium growth. Risks such as social inflation, reserve adequacy concerns, and economic policy uncertainties could increase claims costs.
Swiss Re notes that narrowing gaps between portfolio yields and market interest rates may reduce the investment income tailwind.
Swiss Re’s outlook suggests a deceleration in premium growth across most lines. Commercial auto liability premiums grew 11% year-over-year in the third quarter of 2024, driven by higher claims costs from social inflation. Premiums for other liability claims-made policies increased for the first time in two years, potentially indicating market stabilization
However, workers' compensation premiums continue to shrink due to ongoing rate declines and emerging risks such as medical inflation and competition.
The combined ratio for the industry is forecast to remain at 98.5% in 2025, increasing slightly to 99% in 2026. Through the first nine months of 2024, the net combined ratio was 98.2%, supported by favorable reserve developments and rate increases in personal lines. Swiss Re expects slower premium growth to be offset by lower economic inflation, with US Consumer Price Index (CPI) inflation forecast to average 2.5% in 2025.
Personal lines experienced notable improvement in underwriting results in 2024, particularly in private passenger auto, where the combined ratio dropped 16 percentage points from its 2022 peak of 112%. However, Swiss Re warns that these improvements may slow, as claims costs and premium growth converge.
Natural catastrophes continued to weigh on the industry in 2024, with 24 weather events in the US each causing over US$1 billion in economic losses. Hurricanes Helene and Milton alone generated combined insured losses approaching US$50 billion.
Globally, losses from natural catastrophes are expected to exceed US$135 billion in 2024, with the US accounting for about two-thirds of the total.
Investment income remains a key contributor to industry profitability. Swiss Re forecasts US P&C portfolio yields to rise to 4.0% in 2025 and 4.3% in 2026, up from 3.7% in 2024. While the investment tailwind is moderating, yields on maturing securities are expected to remain above average. The Federal Reserve’s anticipated rate cuts are unlikely to significantly impact the industry, given its limited reliance on short-term investments.
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