Fitch Ratings projects that the property and casualty (P&C) insurance sector will continue to face difficulties in 2025 due to volatile natural catastrophe risks. However, the firm believes strong capital reserves, prudent risk management, and effective reinsurance strategies will help insurers absorb potential losses.
At its recent North American Insurance Conference, Fitch emphasized that the P&C industry remains highly exposed to large-scale natural disasters. Although recent years have seen multiple significant events, the market has not yet encountered a “mega catastrophe.”
While wildfires have left a lasting impact, hurricanes pose the greatest threat to financial stability. A direct hit by a major hurricane on Miami could lead to losses exceeding $100bn, while a large earthquake in Los Angeles or San Francisco could result in severe financial consequences.
U.S. P&C insurance market in 2024 is expected to show improved underwriting results, according to the Insurance Economics and Underwriting. P&C economic growth in 2024 ended slightly below U.S. GDP, at 2.3% versus 2.5% year-over-year (YOY). However, in 2025 and 2026, P&C growth is expected to outpace overall GDP, improving year-end expectations.
Property catastrophe rates remain high
Property catastrophe rates remain high due to the growing frequency and severity of storms. Larger insurers can better manage these risks through diversified portfolios and strong reinsurance protections.
However, in states like Florida, smaller specialty insurers depend heavily on reinsurance and state-backed programs such as the Florida Hurricane Catastrophe Fund and Citizens Insurance. If losses exceed reinsurance coverage, many of these firms could face financial distress.
Hurricane intensity is becoming more unpredictable due to rising sea surface temperatures. Recent storms, including Helene and Debbie, have impacted areas previously considered lower-risk.
Hurricane Helene caused damage as it moved inland into Georgia, while Hurricane Debbie led to severe insured losses in Quebec, Canada, where flood coverage is more widely available than in the US.
Convective storms, including tornadoes and other severe weather events, are playing an increasing role in overall losses. In the last two years, insured losses from these events reached $50bn, particularly affecting the central US, where expanding suburban housing developments face heightened storm risks (see WTW’s Natural Catastrophe Review: Key Data Insights and Trends).
In 2024, the most costly catastrophes in the US were hurricanes Helene and Milton, with insured losses estimated between $30bn and $45bn.
P&C Industry Underwriting and Income Highlights
| 2024 | % chg | |
| Net Written Premiums | 461.8 | 10.5% |
| Underwriting Gain Incl Policy Divs | 3.6 | -115.0% |
| Investment Income | 41.8 | 24.8% |
| Realized Investment Gains | 58.3 | 2458.6% |
| Operating Income | 38.2 | 475.4% |
| Net Income | 96.5 | 981.5% |
| Adjusted Net Income | 41.2 | 362% |
| Policyholders’ Surplus | 1,089.8 | 5.3% |
Premium growth remained strong, with direct written premiums (DWP) up 11% and net written premiums up 10% year-over-year in 2024. Significant rate increases in auto and homeowners’ insurance led to a 15% rise in personal lines DWP.
Meanwhile, commercial lines DWP growth continued to moderate, increasing by roughly 5% for the period.
P&C Industry Performance Highlights
| 2024 | Change | |
| Loss Ratio | 72.4% | -6.3% |
| Expense Ratio | 24.9% | -0.4% |
| Dividend Ratio | 0.3% | 0.0% |
| Combined Ratio | 97.6% | -6.8% |
| Annualized Operating Return on Surplus | 7.2% | 5.9% |
Natural disasters remain a primary driver of losses
While natural disasters remain a primary driver of losses, underinsurance in certain categories may lead to even greater financial gaps. Earthquakes and fires could cause losses exceeding insured amounts due to low coverage rates. In California, for example, only 10% of homeowners have earthquake insurance.
Despite the impact of major disasters, Fitch maintains that the industry is well-capitalized to handle significant losses. However, the sector remains vulnerable to back-to-back large-scale events.
Historical examples, such as the 2001-2002 period—which included the September 11 attacks, multiple hurricanes, and stock market declines—illustrate how simultaneous crises can strain reserves.
A sharp downturn in financial markets could also pressure capital reserves. Past equity market declines in 2001, 2008, and 2022 demonstrated how falling asset values can weaken the industry’s financial position. These downturns highlight the need for insurers to carefully manage capital in unpredictable economic conditions.
Social inflation is another growing challenge
The rise of mass tort litigation and large jury verdicts is pushing up casualty losses.
Legal trends have increased the cost of insurance claims, similar to the effects of asbestos-related lawsuits and class-action cases in previous decades. As insurers face mounting legal expenses, premium rates are expected to rise.
Persistent inflation and slow economic growth could also impact the adequacy of loss reserves. Commercial auto and other long-tail liability lines are particularly affected, as insurers must accurately estimate future claims severity amid rising costs and legal risks.
Any miscalculations in pricing these liabilities could lead to reserve shortfalls and require additional capital adjustments.
While the P&C insurance industry faces ongoing risks from natural disasters and legal costs, Fitch remains confident that strong capital reserves and risk management strategies will help insurers withstand these pressures.
However, rising catastrophe losses, potential financial market corrections, and increasing litigation expenses will require firms to maintain accurate forecasting and robust reserves to ensure long-term stability.
FAQs on Fitch Ratings’ 2025 P&C Insurance Outlook
Fitch Ratings expects increased volatility from natural catastrophes, such as hurricanes, wildfires, and earthquakes, to strain the industry. Rising litigation costs and economic uncertainty further add pressure.
Fitch believes strong capital reserves, strategic risk management, and effective reinsurance will help insurers absorb substantial losses despite growing risks.
Hurricanes remain the most significant risk, especially in Florida. A major hurricane hitting Miami could cause over $100bn in losses. Earthquakes in Los Angeles or San Francisco also pose severe financial risks.
Larger insurers have diversified portfolios and stronger reinsurance protections. In contrast, smaller firms, especially in Florida, rely heavily on state-backed programs and could face financial distress if losses exceed coverage limits.
Mass tort litigation and large jury verdicts have led to higher claim payouts. Similar to past asbestos lawsuits, this trend is increasing insurance costs and premium rates.
Yes, significant equity market declines—such as those seen in 2001, 2008, and 2022—could reduce capital surpluses, making it harder for insurers to maintain financial stability.
Insurers must accurately forecast losses, maintain sufficient reserves, and adjust pricing strategies to account for increasing catastrophe claims, litigation costs, and economic shifts.
