Insurance Industry Defies Expectations in 2024, Signaling Resilience
Predictions of doom for the property and casualty (P&C) insurance industry following an active hurricane season in 2024 have been proven wrong by recently released financial results. The industry demonstrated profitability, with a combined ratio – measuring losses and expenses against premiums – of 96.6% for the year. This performance is a significant improvement compared to a marginally unprofitable 101.8% in 2023.
Jerry Theodorou, Director of the Finance, Insurance and Trade Policy Program at the R Street Institute.
The industry’s resilience is particularly noteworthy given that 2024 was marked by significant hurricane activity, with storms like Helene and Milton alone causing an estimated $95 billion in losses. Furthermore, the industry experienced premium growth, with direct written premiums reaching $1.05 trillion, up from $969 billion in 2023.
Key Performance Indicators (in $ billion)
(Source: CapitalIQ Pro)
Consistent with recent years, the industry’s operating ratio, which includes investment income, held steady at approximately 7%. While the average net profit margin for Fortune 500 companies is about 13%, it illustrates that the insurance industry is modestly but not wildly profitable.
Key Developments in 2024: Shifting Trends and Unexpected Gains
Beyond the overall profitability, several interesting developments emerged in the reported results.
- Personal vs. Commercial Lines: The proportion of industry premium coming from personal lines insurance (primarily auto and homeowners’ insurance) increased to 51.4% of the total. This shift can be attributed to steep rate increases in many states for both auto and homeowners’ insurance, which outpaced the rate adjustments in the commercial insurance sector.
- Berkshire Hathaway’s Impact: The industry’s income statement showed a substantial $79 billion in realized capital gains for 2024. This notable figure was largely driven by Berkshire Hathaway, which sold roughly $80 billion of Apple stock during the year. Berkshire Hathaway’s robust returns from its Apple holdings, representing a near-800% return since its initial investment, significantly influenced this outcome.
Challenges Ahead: Navigating Uncertainty in 2025
Throughout 2024, some analysts suggested the insurance industry was on the brink of collapse due to escalating claims stemming from climate change. However, the actual numbers contradict these claims. Insurance companies and reinsurers continue to manage risks and maintain “catastrophe budgets” to prepare for natural disasters.
Looking towards the remainder of 2025, the potential impact of the second Trump administration warrants close observation. The R Street Institute’s Jerry Theodorou suggests there are already negative consequences arising from job cuts at the National Oceanic and Atmospheric Administration (NOAA). NOAA’s data is critical for insurers to calculate catastrophe budgets. In the R Street study “The Truth About Natural Catastrophes” NOAA climate research experts were key to the analysis the institute made.
A further concern for insurers is the potential for increased litigation, particularly with the presence of plaintiff trial lawyers in key administration positions. The S&P Composite 1500 Property & Casualty Insurance Index has returned 7.52% this year, indicating investors’ confidence in insurers. However, the potential for increased litigation and other uncertainties suggests potential turbulence ahead.
