AM Best: US P&C insurers generated high investment returns and exceeded cost of capital in 2024

By Isha Marathe

April 28 - (The Insurer) - U.S. property/casualty insurers generated high investment returns and were able to exceed their cost of capital in 2024 despite another year of elevated catastrophe losses, AM Best said.

In a new report, AM Best said U.S. property casualty lines recorded an underwriting gain of approximately $22.9 billion last year, a significant improvement over a $21.3 billion underwriting loss in 2023. This was despite two major hurricanes, severe convective storms, winter weather events and wildfires in New Mexico, which led to significant insured property losses in 2024.

The turnaround in underwriting was driven by improved performance in personal lines, especially in the private passenger automobile segment.

"While insurers have experienced significant underwriting losses in recent years, investment income has been strong, and insurers have posted positive operating income despite underwriting losses," the report said.

AM Best said that insurers have been able to reinvest bonds at higher interest rates, and their diversified equity portfolios also boosted investment income materially.

Additionally, P&C insurers have taken advantage of a higher federal funds interest rate to reinvest bonds at a higher rate, and insurers’ diversified equity portfolios also boosted investment income materially.

As a result, the total P&C industry is estimated to have increased investment income by 15% in 2024.

AM Best said P&C insurers’ ability to navigate turbulent waters can be seen in the median return on capital employed surpassing the median weighted average cost of capital for four of the last five years, while having the highest median ROCE in over a decade at 13.2%.

This ROCE reflects prudent investment strategies and effective risk management that P&C insurers have exceeded their cost of capital despite the prevalence of natural disasters in 2023 and 2024, AM Best said.

The return on investment reached a new high in the P&C sector, increasing by 14.9% and exceeding the cost of equity at 8.1%.

Essentially, the robust performance of the equity market in 2024 drove a decrease in the cost of equity, which in turn lowered the overall cost of capital, AM Best said.