US P&C market profitability may normalise after record 2024: S&P GMI

By Ashish Tiwari

Aug 13 - (The Insurer) - The U.S. P&C insurance sector is transitioning from a period of robust profitability in 2024 to more normalised results in 2025, as the industry grapples with emerging challenges from natural catastrophes, inflation and evolving market dynamics, according to S&P Global Market Intelligence.

The industry achieved its best underwriting performance in more than a decade in 2024, boosted by strong premium growth, slowing claims cost inflation and record net investment income.

S&P Global Market Intelligence in its 2025 U.S. P&C Insurance Market report, released on Thursday, said the combined ratio dropped to 96.5% in 2024, its lowest level since 2013.

“The confluence of relatively high interest rates, a resilient domestic economy, and improving underwriting profitability made for uniquely favorable operating conditions (in 2024),” the report noted.

However, S&P Global Market Intelligence warned that the combined ratio may rise to 99.2%, indicating slimmer profit margins.

Premium growth is also expected to slow, with forecasts settling at around 5% for the year.

Experts caution that profitability remains “transitory” owing to catastrophic events, such as January’s Los Angeles wildfires, and persistent inflation in both claims costs and legal expenses.

The report highlighted that significant wildfire losses in the first weeks of 2025 could create earnings pressure later, especially if the year proves to be above average for natural catastrophes.

S&P Global Market Intelligence warned that persistent social inflation pressure leads to higher claims costs and creates uncertainty over reserves.

Commercial auto, excess casualty and professional liability remain vulnerable to adverse reserve development.

Personal auto underwriting profits are set to ease as insurers shift focus from rate increases to policy growth, with the personal lines market poised to outperform commercial lines for only the second time in 13 years.

In 2024, 11 of the top 15 private auto insurance groups posted profitable combined ratios, compared to only two in 2023, according to the report.

The homeowners segment remains volatile, exposed to severe weather events and inflation in repair costs. While “broad-based corrective pricing and underwriting actions” are stabilising results, natural catastrophe risk and regulatory shifts, especially in states like California and Florida, are major watchpoints for 2025.

“State Farm General Insurance, California’s largest homeowners insurer, produced a staggering direct incurred loss ratio of 859.2% in Q1, nearly matching six previous years combined,” the report noted.

S&P Global Market Intelligence described the commercial lines outlook as a “mixed bag”. Workers’ compensation continues to deliver stability, but segments like commercial auto and product liability struggle with claims inflation and adverse reserve development.

The commercial lines combined ratio is expected to reach a five-year high of 99.6% in 2025, signalling margin pressure.

Kinsale Insurance, Assurant and Intact Financial led the 2024 performance for overall and commercial lines, while Grinnell Mutual, HCI Group and Progressive dominated personal lines.

Looking ahead, the report noted that “success is typically transitory", and the market faces risks from both macroeconomic headwinds and industry-specific stressors.