Statutory underwriting performance in the U.S. property and casualty insurance industry saw strong revenue growth, a return to underwriting profits, and increased investment earnings in 2024. This combination drove statutory operating earnings to record levels, according to Fitch Ratings report. Beinsure analyzed the report and highlighted the key points.
Barring substantial natural catastrophe losses, the industry is on track for similar or slightly improved full-year combined ratios and returns on surplus compared to the 9M 2024.
The U.S. property and casualty insurance market is set for a return to underwriting profitability and significant improvements in return on capital for the full 2024 year.
In the interim reporting period, there’s a clear disparity in underwriting performance between personal and commercial lines, as evidenced by the direct loss ratios. The personal auto sector continues to grapple with escalating loss severity, impacting incurred losses.
U.S. P&C insurers achieved a strong statutory underwriting profit year-over-year in the Q3 2024, driven by lower winter storm losses and a recovery in personal auto results.
The market faces significant challenges in maintaining commercial lines pricing to meet ongoing loss-cost inflation and increased litigation risks in several segments.
Favorable pricing conditions in the first quarter of 2024 supported strong growth in net written and earned premiums, at 10% and 11%, respectively.
Milton’s impact will extend across P&C insurers
Milton’s impact will extend across P&C insurers, especially as primary homeowners’ insurers in Florida manage risk by passing a substantial portion of business to third-party reinsurers. Major national insurers hold minimal market share in Florida and have reduced their exposure through non-renewals, aiming to balance risk exposure and manage reinsurance program costs.
Economic and insured losses from Hurricane Milton remain uncertain, Milton is the second major storm to hit the U.S. within two weeks, following Hurricane Helene.
Hurricane Milton is anticipated to be one of the most powerful and economically detrimental hurricanes to make landfall in the western region of Florida.
Beinsure Media analysts reviewed S&P report and catastrophe modeling companies’ forecasts regarding the potential losses from Hurricane Milton and present a review on the Milton’s impact on major Florida’s insurance companies and the global reinsurance sector.
Personal insurance results are expected to improve into 2025
Personal auto insurance results are expected to improve into 2025, achieving break-even or better combined ratios as favorable pricing momentum continues. However, commercial line results could weaken if price increases fail to keep pace with loss costs.
Full-year actuarial evaluations of incurred losses could lead to less favorable reserve results in the 2024.
Premium growth remained strong, with direct written premiums (DWP) up 11% and net written premiums up 10% year-over-year in 9M 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
| | 2023 | 2024 | Change |
| Loss Ratio | 78.8% | 72.4% | -6.3% |
| Expense Ratio | 25.3% | 24.9% | -0.4% |
| Dividend Ratio | 0.3% | 0.3% | 0.0% |
| Combined Ratio | 104.4% | 97.6% | -6.8% |
| Annualized Operating Return on Surplus | 1.3% | 7.2% | 5.9% |
Realized investment gains and net income for 1H 2024 includes $55.3 bn gains reported by Berkshire Hathaway on sale of Apple, Inc. stock. Excluding this gain, realized investment gains and net income would be up 29.8% and 361.7% YoY respectively.
P&C Industry Underwriting and Income Highlights
| | 2023 | 2024 | % chg |
| Net Written Premiums | 418.0 | 461.8 | 10.5% |
| Underwriting Gain Incl Policy Divs | (24.1) | 3.6 | -115.0% |
| Investment Income | 33.5 | 41.8 | 24.8% |
| Realized Investment Gains | 2.3 | 58.3 | 2458.6% |
| Operating Income | 6.6 | 38.2 | 475.4% |
| Net Income | 8.9 | 96.5 | 981.5% |
| Adjusted Net Income | 8.9 | 41.2 | 362% |
| Policyholders’ Surplus | 1,035.1 | 1,089.8 | 5.3% |
The industry underwriting combined ratio (CR) dropped nearly seven percentage points year-over-year to 98% in 2024, driven by a sharp recovery in personal lines results.
Favorable loss reserve development from prior underwriting periods, totaling 1.8% of earned premiums (up from 1.4% in 2023), also contributed. This improvement defied expectations, given increased reserve risks in liability segments due to inflation and litigation-driven loss costs.
Improved underwriting results and investment income in P&C insurance
Improved underwriting results and investment income propelled operating earnings to $38.2 bn, marking the highest six-month statutory result on record, nearly five times higher than $6.6 bn a year earlier. The annualized operating return on surplus rose to 7.2%, the best mid-year result since 2018.
Statutory net income surged to a record $96.5 bn in 1H 2024, largely driven by an unusual $55 bn realized gain from Berkshire Hathaway’s Apple stock sale, as the company ranks as the industry’s second-largest writer by premiums.
Adjusted for this sale, the industry’s net return on surplus still improved to 7.8% for 2024. Policyholders’ surplus (PHS) rose by 4.5% to nearly $1.1 tn.
P&C Insurance Industry Direct Loss Ratios
Direct loss ratios in personal lines improved by 10 percentage points year-over-year to 68% in 2024, as successive large premium rate hikes in auto and homeowners’ insurance took effect.
Reduced loss severity trends also benefited personal auto, with the loss ratio dropping 15 points year-over-year to 63%. Personal auto liability saw more gradual improvement, with a loss ratio of 71% in 2024 versus 76% in 2023. Homeowners’ direct loss ratio improved by 13 points year-over-year to 69%.
The commercial P&C insurance sector maintained a strong position
The commercial P&C insurance lines sector maintained a stronger position than personal lines, with a 54.5% direct loss ratio in 2024 compared to 56.5% in the prior year.
This improvement was driven by better results in commercial property and multi-peril underwriting, with workers’ compensation remaining highly profitable.
However, other liability saw a six-point increase in the direct loss ratio to 64%, and commercial auto liability worsened by three points to 76%, reflecting continued loss severity challenges due to higher economic and social inflation.
Personal lines continue to drive growth and profitability improvements, while competition is reemerging in personal auto. However, growth in commercial lines, including property, is slowing (see TOP 100 Property & Casualty Insurance Companies in the U.S. in 2024).
- Outlook for 2024 remains favorable after strong underwriting results and rising investment returns contributed to 14% ROE
- Forecast industry ROE of 9.5% in 2024 and 10% in 2025
- Premium growth estimate at 8% for 2024 and 5% for 2025
- Personal lines remain the growth driver this year; commercial lines are slowing, with property lines seeing a notable deceleration.
- Higher reinvestment yields resulted in a much-improved investment result in 2024 compared to a year ago.
Swiss Re anticipate higher industry ROE as personal lines’ margins improve.
We maintain our forecast of 9.5% ROE for 2024 and 10% for 2025, close to the industry’s cost of capital of 10-11% and increase from 3.4% in 2023. Q1-Q2 2024 results confirmed this positive trend, with ROE reaching 14%
This momentum is supported by strong premium growth, easing inflation, and improved investment returns. In 2024, net premiums earned increased by 12% year-over-year, while net claims remained flat.
We expect this favorable gap between premiums and claims to continue through 2024. Additionally, Q2 2024 recurring investment yields were about one-third higher than the previous year.
Despite this optimistic outlook, risks remain. Social inflation could weaken favorable reserve development, an economic downturn could impact premium growth, and persistent inflation could further pressure claims costs, all potentially reducing industry ROE, but P&C insurers face several key risks and trends.
FAQ
Strong revenue growth, underwriting profits, and increased investment earnings led to record statutory operating earnings for the industry, according to a Fitch Ratings report.
Personal lines saw improvements, especially in auto and homeowners insurance, while commercial lines maintained a stronger position. However, commercial auto liability and other liability segments faced challenges due to inflation and increased litigation.
Hurricane Milton significantly impacted the industry, especially in Florida, where primary homeowners’ insurers managed risk by passing business to reinsurers. The storm is anticipated to be one of the most costly to hit Florida’s western region.
Personal auto insurance improved with loss ratio dropping 15 percentage points year-over-year to 63%, thanks to rate increases and reduced loss severity. Improvement is expected to continue into 2025.
Investment gains were substantial, with $55 bn realized from Berkshire Hathaway’s sale of Apple stock. Excluding this, investment gains and net income still saw significant year-over-year growth, supporting overall profitability.
Direct loss ratios for personal lines improved to 68%, while commercial lines remained stable at 54.5%. These improvements reflect premium rate hikes in personal auto and homeowners insurance, along with stable performance in commercial property and workers’ compensation.
The annualized operating return on surplus reached 7.2% by 2024, marking the highest mid-year result since 2018 and highlighting the industry’s robust performance.
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AUTHORS: James Auden – Managing Director at Fitch Ratings, Laura Kaster, CFA – Senior Director of North and South American Financial Institutions, Fitch Ratings, Christopher Grimes – Director at Fitch Ratings
