According to the April 2025 report “US Property & Casualty Outlook: The Past Weighs on the Present” by the Swiss Re Institute, the US property and casualty (P&C) insurance industry is expected to maintain stable profitability in 2025, although growth will decelerate and underwriting uncertainty remains elevated. The report, authored by James Finucane and Thomas Holzheu, outlines how previous liability reserve developments, natural catastrophe losses, and recent tariff policies are shaping the industry’s near-term trajectory.
Profitability Forecast and Investment Income
The Swiss Re Institute forecasts a return on equity (ROE) of 10% for both 2025 and 2026, supported by increased investment returns. This marks a slight decrease from the estimated 11% ROE in 2024. The report attributes this to reduced underwriting tailwinds and narrowing yield gaps between portfolio and market rates. Net investment income reached $79 billion in 2024, a 20% increase over the prior year. Portfolio yields are projected to rise to 4.0% in 2025 and 4.2% in 2026.
Underwriting and Combined Ratio
The industry’s combined ratio is expected to rise to 98.5% in 2025 and 99% in 2026, up from 97.2% in 2024. The 2024 underwriting improvement was driven by a 9 percentage point (ppt) improvement in personal lines loss ratios, partially offset by a 2 ppt increase in commercial lines. Early 2025 wildfire losses in California are projected to add 3 ppt to the net combined ratio, consuming nearly half of the industry’s annual catastrophe budget. Ongoing risks include construction cost inflation, auto claims volatility, and social inflation in liability lines.
Premium Growth Outlook
The report projects 5% growth in direct premiums written (DPW) in 2025 and 4% in 2026. These figures reflect a deceleration from recent years but remain above long-term averages. Tariffs and reduced net migration may raise goods prices and wages, potentially requiring further premium adjustments. Growth is expected to be influenced by both economic conditions and the underwriting cycle.
Impact of Tariffs on Personal Auto Lines
Tariff-related risk is a significant factor in the personal auto segment. Following the announcement of a 25% tariff on imported vehicles (effective April 4, 2025) and the scheduled application of the same rate on imported car parts (effective May 3, 2025), insurers appear to have halted previously planned rate reductions. Between Q3 2024 and Q1 2025, approximately 20% of personal auto rate filings indicated decreases, but new filings have declined post-announcement. Advertising spend in this line more than doubled in 2024, signaling increased competition.
Reserve Development and Liability Trends
In 2024, insurers added $16 billion to prior-year liability reserves. According to the report, over the past decade, commercial liability lines have experienced $62 billion in adverse development (excluding medical professional liability). Favorable developments in workers’ compensation have partially offset this. However, this effect is expected to diminish as the line shrinks in relative size and the gap between wage and medical cost growth narrows.
Investment Income Trends
Investment returns are expected to continue supporting profitability. While new money yields are approaching existing portfolio yields, income from maturing securities remains above the portfolio average. With only about 10% of investments in cash or short-term instruments, anticipated Federal Reserve rate cuts are not expected to materially affect total returns in the near term.
Summary
The April 2025 Swiss Re Institute report indicates that while the US P&C industry is positioned for stable returns, ongoing exposure to liability reserve risk, catastrophe events, and economic variables such as tariffs and wage inflation contribute to an environment of heightened uncertainty. Investment performance remains a positive contributor, but underwriting discipline and rate adequacy will be key to maintaining profitability over the forecast period.
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