Strategic planning amid financial resurgence | Insight Investment

Property and casualty (P&C) insurers made a strong return to profitability. Amid ongoing uncertainty, this may present a valuable opportunity to retroactively evaluate their enterprise risk management (ERM) frameworks.

P&C insurers stage remarkable financial turnaround

Following a perfect storm of underwriting losses, inflation and rising weather-related insurance costs, the latest full-year financials show a strong profit recovery across the P&C sector.

Investment performance rebounds as markets recover

After a historic year in 2022 when both stocks and bonds posted negative returns, the S&P 500 Index delivered two consecutive years of total returns over 20% and bond markets stabilized as the Fed brought its hiking cycle to an end then started to ease rates (Figure 1, left). In 2024, P&C insurers’ investment income increased by 28%, and net realized capital gains surged by 57% (Figure 1, right).

Figure 1: Insurance companies have taken advantage of stronger financial markets¹

Underwriting performance also rebounds strongly

For the first time since 2020, the P&C sector also posted a net underwriting gain, with $26.8bn in underwriting profit (Figure 2). This appeared to be driven by a focus on premium growth and disciplined underwriting, as the industry’s combined ratio improved to 96.6 from 101.6 in 2023². Net premiums written (across both personal and commercial lines) rose by 8.8% to $932.7bn, while net premiums earned increased by 9.9% to $902.5bn. Incurred losses increased a modest 2.1%.

Figure 2: P&C insurers net underwriting gains turn positive for the first time since 2021²

This performance helped offset rising reinsurance costs

Reinsurance premium rates continued to rise. Weather-related catastrophes remained historically high (Figure 3) while elevated inflation helped push up economic replacement costs. Major catastrophe losses were over $100bn³.

Figure 3: P&C results were strong despite continued high weather-related costs⁴

P&C insurers delivered record net income and surplus

The bottom line for the industry was aggregate net income a $171bn, which drove the policyholder surplus to a record $1.1trn – a 7% year-on-year increase. Insurers also distributed $87bn in dividends³.

Figure 4: The bottom line is highly encouraging for the P&C industry⁵

Are P&C insurers well-placed to maintain their financial performance?

The last few years provide a full cycle of financial performance for P&C insurers. With financial market uncertainty and weather-related losses likely to remain, we believe now may be a good time to test the effectiveness of ERM programs and revisit all major risk tolerance limits.

As part of this, we believe working with investment managers to align underwriting pricing assumptions with capital market expectations can help establish robust strategic investment guidelines to control net income and statutory surplus volatility. We believe P&C industry ERM practices favor a holistic approach to managing both investment and underwriting volatility to manage their contribution to net income volatility.

Risks continue to evolve on both sides of insurers’ balance sheets. On the underwriting side, geopolitical uncertainties, such as tariffs, remain significant for inflation risks while on the investment side, valuation risks and increased allocations to private assets warrant ongoing vigilance in ERM practices.

We believe a robust ERM program can help equip insurers to navigate industry challenges and proactively prepare for future uncertainties. We advocate a holistic approach to modeling surplus risk, ensuring resilience across diverse market conditions.