US property & casualty outlook: results stabilize as competition heats up

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. We project return on equity (ROE) to remain at around 10% in 2025 and 2026, as plateauing and gradually deteriorating underwriting results are offset by slightly higher investment income. Four consecutive years of ~10% premium growth have helped insurers repair underwriting results after a jump in claims costs starting in 2021, bringing industry returns roughly in line with investor targets. As more insurers reach rate adequacy and target higher growth – especially in personal lines – we see industry growth slowing toward longer-term averages, with premiums up 5% in 2025 and 4% in 2026.

• Our outlook for 2025 is for decelerating growth and stable profits, but uncertainties abound.
• We forecast industry ROE of 10% in 2025 and 2026 as higher investment return offset a gradual weakening in underwriting profitability.
• We raise our premium growth estimate to 5% (from 4%) for 2025 as inflation pressures may slow rate declines. We forecast 4% growth in 2026.
• Large improvements in personal lines underwriting drove industry gains in 2024, but headwinds are building.

We forecast US P&C insurance industry ROE to stabilize at 10% this year and next.¹ This is a slight improvement from 2024, with ROE of 9.5% through 9M24. Last year, a significant improvement in personal lines followed over USD 80 billion of underwriting losses in the 2021-23 period. Strong premium growth coincided with easing inflation and low claims cost growth, with industry net premiums earned up 14% from a year earlier and net claims incurred up 5%. Higher investment yields provided another tailwind, with returns more than 20% higher than the previous year. 

We expect the improvement in underwriting performance to slow. In our last quarterly outlook, we noted a revival of competition in private passenger auto insurance. By 3Q24, growth started to decelerate noticeably, with premiums in personal auto up 11% year-on-year, down from 15% in 2Q24. It was just one of many lines of business in which growth decelerated. On the claims side, downside risks from social inflation, reserve adequacy and economic policy remain and could pressure claims costs. At the same time, the gradually narrowing gap between portfolio yields and market interest rates weakens the investment benefit. Our forecasts do not minimize the work facing the industry as it attempts to maintain stable results.

Table 1: US P&C insurance sector outlook

We forecast P&C direct premiums written (DPW) growth of 5% in 2025 and 4% in 2026, after nearly 10% in 2024. Premium growth decelerated across nearly all major lines in 3Q24 (see Figure 1), with a few exceptions in statutory business that had already experienced negative or low growth (eg, Other Liability- Claims Made and Medical Professional Liability). Deceleration in 2H24 is consistent with our expectation of lower growth in 2025 as more insurers chase market share, especially in personal lines. That said, where we had previously estimated premium growth of 4% for the new year, we have revised that back up to 5.0%. This is on account of prospective tariffs and reduced net migration, which could put upward pressure on goods prices and wage inflation, requiring rate adjustments to compensate. Growth is heavily influenced by the underwriting cycle but supported by exposure growth: we forecast that US real GDP, a broad exposure proxy, will grow by 2.7% in 2024 and 1.9% in 2025.

Figure 1: Quarterly direct premiums written, y-o-y

Premium growth continues to decelerate slowly in commercial lines, and shrink in workers' compensation. Liability lines were the fastest-growing business in 3Q24, with commercial auto liability premiums up 11% y-o-y. This reflected the impact of social inflation factors increasing claims costs and generating reserve uncertainty, resulting in higher rates. Premiums for Other Liability Claims-Made policies grew for the first time in two years, potentially indicating that markets like E&O and D&O are stabilizing after a volatile period. Premiums in workers' compensation continue to shrink as rate declines continue after a decade of favorable underwriting results, but risks are surfacing. Potentially higher medical inflation, high competition and limited upside from future safety gains could erode profitability for this line of business.² The profitability of workers' compensation has also become less of a tailwind for the industry overall: the line accounted for just 11% of commercial line premiums through 9M24 compared to 20% in 2016 (see Figure 2).

Figure 2: Share of commercial lines premiums, 2016 vs 2024

We forecast the industry combined ratio to remain at 98.5% in 2025 before deteriorating slightly to 99% by 2026. The industry net combined ratio of 98.2% through 9M24 is roughly in line with our 2024 estimate of 98.5%. The latter is in part due to more favorable reserve development than expected (USD 9 billion), which contributed a more than 1 percentage point (ppt) reduction to the loss ratio, offsetting slightly higher than expected catastrophe losses. We expect slower premium growth to be balanced by lower economic inflation easing claims pressures, with US CPI inflation forecast to average 2.5% in 2025 and 2.4% in 2026. 

Table 2: Premium growth and loss ratios by line of business, YTD, 9M24

Personal lines saw rapid improvement in underwriting results in 2024, with an easing in claims severity pressures coinciding with regulatory rate increase approvals. This  followed a period of historically poor performance. Personal auto saw the biggest gain, with the 2024 combined ratio an estimated 16 ppt lower than the peak of 112% in 2022. This result matches expectations based on correlations from previous extreme episodes. The line's combined ratio has only exceeded 110% three times since 1950. When losses were driven by inflation in used cars and parts as in 1975 and 2022, the loss ratio in future years improved rapidly. When losses were driven by medical and social inflation factors (1985) with higher yields contributing to weaker underwriting discipline, adverse results persisted for a decade (see Figure 3).

Figure 3: Personal auto combined ratio, 1945-2024E

Figure 4: Three episodes of CR>110%: goods inflation peak and two-year CR improvement

Further, the tailwinds for personal lines are mostly past, with claims costs and premium growth rates starting to converge this year. In the October CPI, used car prices began to level off after large declines earlier in the year, while repair inflation re-accelerated to 7.3%. Medical inflation remains a potential concern, and there are indications that social inflation is also affecting personal lines.³ At the same time, companies are targeting growth, raising ad spending and beginning to cut rates. Premiums for personal auto remained strong in 3Q24 but decelerated  4 ppt from the prior quarter. We forecast a similar convergence for homeowners (ex-cat), with construction prices re-accelerating slightly to an estimated 2.5% in 2025 and 3.0% in 2026.

Catastrophe losses 2024 was another busy year for natural catastrophes. As of 1 November, there had been 24 weather events in the US that caused economic losses of at least USD 1 billion.⁴ The insured portion of these catastrophes added nearly 9 ppt to the US P&C industry's 9M23 net loss ratio.⁵ A high number of severe convective storms caused high claims costs in the first half of the year, while several major landfalling hurricanes drove losses in the second half. Hurricanes Helene and Milton in the 3rd and 4th quarters, respectively, resulted in combined estimated insured losses approaching USD 50 billion. Globally, insured losses from natural catastrophes are on track to exceed USD 135 billion in 2024 – above USD 100 billion for the fifth year running – with the US accounting for at least two-thirds of the total.⁶ Most severe weather-related losses are homeowners' claims,⁷ but the line's loss ratio decreased by 14 ppt in 9M24 compared to a year ago, driven by earned rate increases.   

Investment income We expect US P&C portfolio yields to rise to 4.0% in 2025 and 4.3% in 2026, up from 3.7% in 2024 as recurring investment income continues to rise. The tailwind is slowly receding as the gap between new money yields and portfolio yields shrinks but we expect yields on maturing securities to remain above average through the year. Net investment income earned of USD 57 billion through 9M23 was more than 20% higher than in 9M23 (adjusting for affiliated transactions). We expect a positive differential to continue despite the Federal Reserve's ongoing rate cuts since cash and short-term investments account for only ~10% of the industry's investment portfolio.⁸ We currently expect 75 basis points of cautious policy easing from the Fed before the end of 2025, leaving the upper bound of the federal funds rate at 4.0% before declining to 3.5% in 2026. We forecast the 10-year Treasury yield to end 2025 and 2026 at 4.2%.