The U.S. property and casualty insurance sector has seen a significant turnaround, reporting its first full-year underwriting profit in four years. This shift has contributed to a remarkable rise in net income, reaching $170 billion for the year 2024, as highlighted in a recent report from Verisk and the American Property Casualty Insurance Association (APCIA).
A closer look at the figures reveals that $70 billion of this net income came from capital gains, primarily attributed to Berkshire Hathaway. If we exclude these investment gains from one company, the overall net income for the industry is still impressive at an estimated $100 billion, marking a historic milestone for the sector.
The reports from both S&P GMI and Verisk/APCIA indicate a dramatic improvement in underwriting results. The industry moved from a net underwriting loss of over $20 billion in 2023 to a net underwriting profit exceeding $20 billion in 2024. Specifically, the Verisk/APCIA report estimates the underwriting gain at $24.8 billion, a stark contrast to the $21.8 billion loss recorded the previous year.
Saurabh Khemka, co-president of underwriting solutions at Verisk, pointed out that while many of the loss factors from 2023 continued into 2024, the industry’s adjustment of premiums has led to this underwriting gain for the first time since 2020. Overall, net written premiums rose by 8.7% to $926 billion, while earned premiums grew by 9.8% to $895 billion. This indicates a strong recovery in the market.
The combined ratio, a key measure of profitability, improved significantly. It dropped to 96.4 in 2024 from an alarming 101.6 in 2023, suggesting that insurers are better managing their expenses relative to their earned premiums.
Khemka also noted that adjustments in personal auto insurance premiums contributed to improved results in personal lines. However, commercial auto premiums did not see the same growth rate as in the previous year.
Despite the positive financial news, challenges remain. Khemka mentioned ongoing issues with property catastrophes, which have posed significant risks to insurers. Last year was particularly tough, marking the second worst for catastrophic losses since 1950. Hurricane Milton and other late-season storms led to a staggering 113% increase in catastrophe claims in the fourth quarter compared to the same period in 2023.
Robert Gordon from APCIA highlighted that homeowners’ insurers might report their seventh consecutive year of net underwriting losses by this time next year, especially with record losses from the California wildfires earlier this year.
In summary, while the insurance industry is celebrating a remarkable financial recovery in 2024, it continues to face challenges from catastrophic events that could impact future profitability. The increase in net income and underwriting gains is a welcome sign for the industry, but the road ahead may still hold uncertainties.