Insurers maintain strong returns
Despite ongoing uncertainty in the economic outlook, property and casualty insurers demonstrated continued financial strength through the first quarter of 2025. Many reported growth in net written premiums and investment income, while combined ratios largely remained below 100%. (See Figure 11.)
Although U.S. P&C insurers posted a 99.4% combined ratio in the first quarter, according to AM Best, indicating modest overall profitability, the industry suffered a $1.1 billion underwriting loss for the first three months of 2025, a significant change from 2024’s first-quarter underwriting gain of $9.4 billion. Some individual insurers reported lower returns on equity, driven in large part by losses from January’s California wildfires.
For commercial insurance buyers, the market remains generally predictable and stable across many lines. Competition is growing in property, while buyer-friendly conditions persist in workers’ compensation, directors and officers liability (D&O), and cyber insurance. However, early signs of firming are beginning to appear in D&O and cyber. Third-party liability is still a notable challenge, owing to ongoing social inflation and rising loss trends.
Unsurprisingly, tariffs were a key point of discussion during insurers’ first-quarter earnings calls. “There is currently a great deal of uncertainty and confusion surrounding our government's approach to trade, and it's impacting business and consumer confidence as well as our image abroad,” Chubb Chairman and CEO Evan Greenberg said. “The odds of recession have risen substantially, and higher inflation appears all but certain; to what degree is an open question.”
For more on the insurance and risk management implications of new tariffs introduced in 2025, read New tariffs, new risks: How businesses can respond.
Leading insurers are eyeing the potential impact of tariffs on their operations and taking a cautious yet proactive stance amid rising economic uncertainty. A key concern is that tariffs could disrupt supply chains and fuel inflation, leading to higher loss costs and more pressure on underwriting and pricing strategies.
In first-quarter earnings calls, carriers also highlighted:
- Underwriting discipline. Insurers stressed the importance of risk selection and strategic pricing in a highly competitive market. “Disciplined underwriting and pricing execution, exceptional talent, and innovative customer-centric solutions continue to drive our performance in a dynamic market environment that included elevated industrywide catastrophe losses,” The Hartford Chairman and CEO Christopher Swift said.
- Capital management. Many insurers highlighted their commitment to returning value to investors through share repurchases and dividends. Notably, AIG reported it returned $2.5 billion in capital to shareholders in the first quarter, including $2.2 billion in share repurchases and $234 million in dividends, and that its board had approved a 12.5% increase in quarterly dividends beginning in the second quarter.
In addition, insurers are watching rising bond yields. While higher yields generally support stronger net investment income and improve discounting assumptions, they can contribute to unrealized losses on fixed income portfolios under mark-to-market accounting. This, in turn, may pressure regulatory capital ratios and credit ratings, and contribute to reduced corporate spending, lower insured exposures, and slower premium growth.
Despite the ongoing uncertainty, however, insurers continue to invest in a variety of strategic initiatives aimed at boosting growth and profitability. These include international expansion, both organically and via acquisitions; the launch of new industry practices; and investments in artificial intelligence and digital capabilities.
Reinsurance market conditions remained favorable to property insurers through April 1 treaty renewals. January's Southern California wildfires primarily affected personal lines and retrocession layers, with limited effects on commercial property programs. Capacity remains abundant; barring multiple large-scale events, favorable conditions are expected to continue through the July 1 renewal period.
Property reinsurers appear comfortable with the evolution of attachment points and terms and conditions over the last two years. Following strong profitability in 2023 and 2024, many reinsurers are showing flexibility on pricing, supported by solid capital positions and disciplined underwriting.
Despite significant scrutiny, the liability reinsurance market is also broadly stable. Reinsurers are generally satisfied with actions taken by cedants in recent years to manage their liability portfolios, including reductions in limits. While reinsurers remain concerned about loss severity and social inflation, the strong underlying rate, current interest rates, and economic returns mean it’s a good time for reinsurers to write long-tail business.
Treaty rates are generally flat, capacity is abundant, and reinsurers largely have a bullish outlook. Absent a change in interest rates or a major casualty event, the liability reinsurance market should remain stable for the foreseeable future.
As we have previously noted, three major trends are weighing on commercial insurers in the current environment.
01 Social inflation
Liability rate increases continue to accelerate, driven largely by rising casualty loss costs, fueled by social inflation. In 2024, corporate defendants faced 135 so-called “nuclear” verdicts of $10 million or more, according to Marathon Strategies — a sharp rise from 90 such verdicts in 2023 and the most in a calendar year since Marathon began its tracking in 2009. (See Figure 12.)
Even more striking, 49 of these verdicts were what Marathon calls “thermonuclear,” delivering judgments of $100 million or more, up from 27 in 2023. Five verdicts of $1 billion or more were rendered in 2024, another record and up from two in 2023.
Nuclear verdicts totaled $31.3 billion, more than double their total value in 2023. (See Figure 13.) The median verdict rose to $51 million in 2024, up from $44 million in 2023.
Across the insurance industry, a well-organized plaintiffs’ bar and third-party litigation funding are widely seen as significant factors in the overall growth of litigation costs and nuclear verdicts. Plaintiffs are increasingly willing to pursue aggressive legal strategies, test novel legal theories, and reject early settlement offers, driving up both the frequency and severity of claims.
Recent legislative developments in Georgia offer businesses a measure of relief against the impact of litigation financing. On April 21, Governor Brian Kemp signed SB 69, which limits financiers’ input into litigation filed in Georgia courts and allows for the discovery of funding agreements’ terms. He also signed SB 68, which limits potential liability for businesses, limits the ability of plaintiffs to introduce nonfactual evidence of noneconomic damages, and allows for bifurcated trials in which the determination of liability and damages are separated.
These are welcome developments for Georgia, which the American Tort Reform Association recently labeled a “judicial hellhole.” SB 68 and 69 come two years after similar laws were enacted in Florida and mark a significant step toward tort reform. Whether other states will follow Georgia’s and Florida’s lead remains uncertain.
At least one major insurer is taking a firm stance against litigation finance. Speaking at the annual RISKWORLD conference in early May, Greenberg said that Chubb “would sever ties with suppliers if they continued to make money from the litigation finance (LitFin) industry,” Insurance Insider US reported. “The chief executive said that Chubb would no longer work with asset managers, lawyers, bankers or use brokers on its own insurance placements unless they were willing to pledge to discontinue work for LitFin firms.”
There also appears to be some traction regarding tort reform at the federal level. The Senate version of the spending and tax policy bill currently under consideration includes a proposal to tax gains made by third-party litigation funders.
As social inflation drives loss rates and attachment points up, insurance buyers must contend with increased risk selectivity. Notably, a major insurer recently nonrenewed half of its U.S. casualty premiums up for renewal, part of a broader effort to remediate its casualty book and optimize its portfolio. While this is clearly an outlier, its actions reflect broader industry efforts.
In an interesting development, just before May’s RISKWORLD conference, three large liability markets — Chubb, Zurich North America, and Berkshire Hathaway-owned reinsurer National Indemnity — announced the launch of a new excess casualty insurance facility aimed at addressing the “increasingly hostile” litigation environment in the U.S. The facility will offer up to $100 million in lead excess capacity on a “claims-made and reported” basis for large companies beginning July 1. Although it is unclear how it may impact the landscape, this product is a welcome step toward innovation and may lead to similar industry initiatives.
02 Geopolitics
Tensions between major global and regional powers are highly strained, with the conflict across the Middle East representing the most recent flashpoint. Several other factors are bringing global insurance programs into focus for multinational companies. (For more, see A spotlight on geopolitics.)
03 Natural catastrophes
Although property insurers are now aggressively competing for new and renewal business, they remain focused on mounting natural catastrophe loss costs and the long-term impacts of climate change. All leading insurers reported significant, albeit manageable, first-quarter catastrophe losses, largely as a result of January’s wildfires.
In the first quarter of 2025, insured losses for U.S. P&C insurers totaled $50 billion, according to Fitch Ratings, up from roughly $19 billion in the first quarter of 2024. $38 billion of these losses stem from January’s Palisades and Eaton wildfires in Southern California, which the industry largely expects will primarily affect personal lines. The remaining losses are mainly from severe convective storm activity, Fitch said.
Globally, insured losses from natural catastrophes totaled $137.4 billion in 2024 and are projected to reach $145 billion in 2025, according to the Swiss Re Institute. (See Figure 14.) If this year’s projection holds, 2025 would rank as the fourth-worst year for natural catastrophe losses on record, after 2017 ($185.2 billion), 2011 ($169.8 billion), and 2005 ($165.7 billion).
Swiss Re’s data highlights how loss benchmarks and expectations are evolving:
For the decade ending in 2004, annual insured losses from natural catastrophes averaged $32.2 billion.
For the decade ending in 2014, annual losses averaged $73.8 billion.
For the decade ending in 2024, annual losses averaged $108.1 billion.
Whereas a year with $100 billion in insured losses has historically been considered an outlier, it is now very much the norm. In February, shortly after the Southern California wildfires were contained, AIG Chairman and CEO Peter Zaffino mused that 2025 could be the first year to see $200 billion in insured natural catastrophe losses, and Swiss Re said there is a 1-in-10 probability that catastrophe losses reach $300 billion this year.
Hurricanes and tropical storms have traditionally been a significant driver of natural catastrophe losses and could produce costly losses again in 2025. The National Oceanic and Atmospheric Administration (NOAA) forecasts a 60% chance of an above-normal Atlantic hurricane season this year.
Substantial budget and staffing cuts to both NOAA and the Federal Emergency Management Agency under the Trump administration are adding to the challenges for businesses with properties at risk. Experts warn these reductions could compromise the accuracy of forecasts and hinder recovery challenges in storm-affected regions.
Beyond windstorms, businesses must still contend with the rising costs of so-called secondary perils, including severe convective storms and flooding. These perils accounted for nearly 60% of all natural catastrophe losses in 2024, according to Swiss Re.
