The US property and casualty (P&C) insurance sector is projected to remain profitable for the next several years, driven mainly by a rapid turnaround in the private auto sector in 2024, according to a recent S&P report.
This follows an 11-year low of 96.5% in 2024, an improvement of 5.1 percentage points driven by a strong fourth quarter for personal lines.
The 2025 projection considers significant losses from January’s southern California wildfires, which will partially offset strong underwriting results in the private auto business, analysts stated.
The report also assumes that social inflation will have a greater negative effect on the industry’s bottom line than potential economic inflation from new US federal government tariff policies.
-->
The improved operating environment in the private auto business, which made up 33.6% of US P&C industry direct premiums written in 2024, is expected to have a negative effect on top-line growth in 2025 and 2026, particularly as some carriers have begun to lower rates.
Additionally, market participants have raised concerns about rate trends in several other lines, such as catastrophe-exposed commercial property business.
Overall, S&P expects a slump in industrywide direct premiums written growth by 3 percentage points to a five-year low of 6.8% in 2025, with mid-single-digit expansion in each of the next four years.
This outlook is based on a “relatively benign macroeconomic environment” with modest GDP growth, slightly higher underemployment, and a move towards lower interest rates.
“Unexpected outperformance or underperformance could have dramatic effects on results for individual P&C business lines and the industry as a whole,” S&P analysts stated.
Adding: “We also maintain a cautious outlook regarding the potential for the frequency and severity of catastrophes such as wildfires, hurricanes and severe convective storms to negatively impact results even as many carriers have taken decisive underwriting and pricing actions after an extended period of poor results. To the extent our outlook proves overly conservative, this could serve as a source of meaningful upside.”
Within personal lines, the private auto combined ratio is projected to slightly improve to 95.1% in 2025, just three years after experiencing its worst results in decades.
However, the homeowners business faces challenges, the report warned, with a projected 2025 combined ratio of 106.1%. This would mark the seventh time in the last nine years that the homeowners combined ratio has exceeded 103%, according to analysts.
Adding: “While results in the first half of the year for publicly traded companies have trended favourably relative to the same period in 2024 even when incorporating the impact of the wildfires, the homeowners direct incurred loss ratio for the industry as a whole hit its highest point in any quarter since the three months ended June 30, 2011, in the first quarter of 2025 at a staggering 102.4%.
“Reinsurers outside of the United States and, thus, outside the scope of our outlook will bear a significant portion of those losses, but we expect that much of the $6.57 billion in direct incurred losses reported in the homeowners line in the first quarter by State Farm General Insurance Co. could contribute as many as 4 percentage points to the 2025 homeowners combined ratio due to the composition of its intercompany reinsurance program.”
Even prior to the deadly and destructive fires, steady increases in homeowners rates, accompanied by increasingly tight policy terms and conditions, have brought public attention to the insurance industry as challenges around the availability and affordability of coverage spread around the country, as well as leading to various public policy responses.
Commercial lines continue to experience a mix performance, according to the report. Social inflation has negatively impacted casualty lines like commercial auto liability and product liability, as plaintiff’s attorneys secure large verdicts and settlements.
This has led to carriers adding to loss and loss adjustment expense reserves for previous years. The combined ratio for other and product liability lines spiked to 109.3% in 2024 from 99.6% in 2023, fueled by an onslaught of adverse prior-year reserve development.
“While it is possible that the 2024 result was an aberration, it may be that the sub-100% combined ratios in those lines from 2021 through 2023 were the outlier — a byproduct of pandemic-era dynamics in court dockets at a time of significant hardening in rates. During a 12-year stretch ended in 2020, the other liability and product liability lines generated combined ratios under 100% only twice. We project improvement from 2024’s large underwriting loss in 2025 and 2026, but only to combined ratios that remain well into the red,” S&P noted.
The commercial auto combined ratio has also remained high, exceeding 103% 12 times in the last 14 years despite a consistent push for rate increases through much of that time frame.
“We have expressed optimism in the past that factors such as increased underwriting discipline, ongoing efforts to achieve rate adequacy and the emerging role of technology in promoting vehicular safety would eventually lead the business line back toward sustained profitability, but the elevated combined ratios of the past three calendar years give us pause as to how achievable that outcome may be,” analysts noted
In contrast, the workers’ compensation business has been consistently profitable, with the 2024 combined ratio of 86.0% marking the eighth consecutive year below 90%.
S&P’s outlook projects a “slow but relatively steady return toward longer-term normalcy, and factors such as the continued migration back to in-person work, an acceleration in medical cost inflation and/or greater-than-expected weakness in the labuor markets could accelerate that timeline.
For only the second time in 13 years, personal lines are set to be more profitable than commercial lines, the report concluded.
About the Author
