The US commercial property & casualty (P&C) insurance sector has a stable outlook for 2025, according to a Moody's report.
The outlook cites strong underwriting profitability as a key factor, supported by growing investment income, even with persistent claims inflation and decreasing rates in certain lines of business like workers' compensation and some areas of professional liability.
According to Moody's, analysts predict a slight slowdown in premium growth for 2025. They estimate a 6% increase in direct premiums written for US commercial lines in 2024, reaching approximately $511 billion, up from $481 billion in 2023. However, they anticipate this growth to moderate in 2025 due to slower inflation and real GDP growth.
The sector benefits from a solid balance sheet, characterized by high-quality investments and robust liquidity. Strong underwriting results and rising investment income will likely offset continued adverse reserve development for some commercial lines.
While some lines of business see price increases, others experience declines.
US commercial P&C insurers are raising rates in areas like general liability, commercial auto, and commercial multiple peril. Conversely, workers' compensation and certain segments of professional liability are witnessing rate reductions.
Commercial property prices have shown a slight decline in Q3 2024 after years of significant increases.
Casualty writers face the headwinds of rising litigation and medical costs, leading to continued adverse reserve development. The sector is grappling with elevated litigation inflation, particularly in commercial auto and general liability lines. This trend can result in underpriced business and necessitate reserve increases.
Medical inflation, which was subdued in the post-pandemic period, has picked up in 2024, exceeding macroeconomic inflation.
Should this trend persist, it could lead to underpricing and adverse reserve development in casualty lines, particularly workers' compensation, commercial auto liability, and commercial general liability.
Overall, US commercial insurers maintain healthy capitalization, generating strong operating cash flow from new and renewal business. They generally do not need to liquidate investments to cover claims. As fixed income securities mature, insurers are reinvesting at higher current yields, further bolstering investment income.
What are your thoughts on the outlook for the US commercial P&C insurance sector in 2025? Share your insights in the comments below.
