Awful Economics: Tariffs and Trade Wars Are Bad for the Global Economy, Insurers and Reinsurers—Period PDF Free Download
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Awful Economics:
Tariffs and Trade Wars Are Bad for the
Global Economy, Insurers and Reinsurers—Period
Robert P. Hartwig, PhD, CPCU
Clinical Associate Professor of Finance, Risk Management & Insurance
Darla Moore School of Business University of South Carolina
Robert.Hartwig@moore.sc.edu 803.777.6782
Orlando, FL
April 23, 2025
P/C Insurance Overview & Outlook: Outline
◼Global Economic Overview & Outlook—Impacts for P/C (Re)Insurers
Growth, Employment, Investments, Inflation, and Recession
Potential impacts of changes in fiscal and monetary policy on P/C insurers
Tariff impacts and P/C insurance
◼P/C Financial Overview & Outlook in a Era of Rising Uncertainty
Premium Growth Underwriting Performance
CAT Loss Update/Reinsurance Capital and Capacity
◼P/C Personal and Commercial Insurance Trends
Cost drivers
Will the hard market continue in 2025?
◼Legal System Abuse
◼Summary and Q&A
Risks to the Global Economy
Are Rising
Is a Global Recession Imminent?
What About Recession in the US?
Economic Growth Is a Major Driver of
(Re)Insurers Growth
The World Is a Threatening Place Today—Economic
Threats, Geopolitics, Technology All Impact (Re)Insurers
2025 Global Risks Report: Global Risks Ranked by Severity
Over the Short and Long Term
Number of deals and
average deal value
plunged in 2023
Source: World Economic Forum Global Risks Report 2025, accessed at: https://reports.weforum.org/docs/WEF_Global_Risks_Report_2025.pdf; Risk & Uncertainty Management
Center, University of South Carolina.
Societal and
Geopolitical
risks
dominate
over the
short run
Environmental and
Technology risks
dominate over the
longer run
Global Economic Overview
Economic Optimism
Is Plummeting in 2025
Uncertainty is a Breeding
Ground for Pessimism
6
Economic Uncertainty, Financial Market
Volatility, Geopolitical Conflicts, Tariffs and
High Interest Rates and Weighing Heavily on
Business and Consumer Sentiment
The Fed’s Job Has Become Nearly Impossible
6
(6.0)
(4.0)
(2.0)
0.0
2.0
4.0
6.0
8.0
10.0
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25F
26F
Advanced economies Emerging and developing economies World
Source: International Monetary Fund, World Economic Outlook (1970-2025); Wells Fargo Economics (2025F – 2026F)
[as of Apr. 22, 2025]; Univ. of South Carolina, Risk and Uncertainty Management Center.
Emerging economies (led
by China, India, Brazil) grew
by 4.3% in 2024 (following
growth of 8.1% in 2023),
expected to slow to +3.7% in
2025 and before rising to
3.9% in 2026
GDP Growth: Advanced & Emerging
Economies vs. World, 1970-2026F
Advanced economies grew by 1.8% in
2024 (after rising by 1.7% in 2023), with
growth projected to slow to +1.4% in 2025
before rising slightly to 1.5% in 2026
Global GDP increased by 3.3% in 2024
(after growing by 3.3% in 2023) but
forecast to slow +2.8% in 2025 before
rising to 3.0% in 2026
GDP Growth (%)
8
Real GDP Growth Forecasts: Major Regions: 2024E – 2026F
1.8%
2.4%
2.4%
1.4%
3.0%
2.1%
1.5%
4.6%
2.4%
3.5%
2.1%
4.2%
5.3%
3.4%
4.0%
3.8%
4.5%
2.0%
0%
1%
2%
3%
4%
5%
6%
Advanced
Econonomies
Emerging &
Developing Asia
Latin America &
Caribbean
Middle East &
Central Asia
Emerging &
Developing
Europe
Sub-Saharan
Africa
2024E 2025F 2026F
Global Growth Prospects Vary Widely but All Will Be Impacted
Negatively by Tariffs and Trade War
China,
India drive
growth in
Asia
Advanced
economy
growth
decelerates
Economic
strength
in Africa
High energy
prices fuel
growth in
Middle East
War,
inflation
hold back
growth in
in Eastern
Europe
Numerous
economic and
political
concerns in
Latin America
Source: IMF, World Economic Outlook, Apr. 2025 at: https://www.imf.org/en/Publications/WEO/Issues/2025/01/17/world-economic-outlook-update-january-2025
and Wells Fargo Economics (3/25); Univ. of South Carolina, Risk and Uncertainty Management Center.
9
Real GDP Growth Forecasts: Major Economies: 2022 – 2026F
2.9%
1.5%
0.4%
0.4%
1.5%
2.8%
0.9%
-0.2%
5.0%
0.1%
1.8%
1.4%
1.1%
0.8%
0.0%
4.0%
0.6%
1.7%
1.6%
1.4%
1.2%
0.9%
4.0%
0.6%
-0.3%
4.4%
1.5%
1.1%
-1%
0%
1%
2%
3%
4%
5%
6%
US Canada UK Euro Area Germany China Japan
2023 2024 2025F 2026F
Growth Prospects Among the World’s Major
Economies Have Been Deteriorating
Eurozone and
UK growth is
sluggish
China
growth
decelerates
US growth
decelerates
in 2025 Growth in
Japan is
sluggish
Source: IMF, World Economic Outlook, Apr. 2025 at: https://www.imf.org/en/Publications/WEO/Issues/2025/01/17/world-economic-outlook-update-january-2025
and Wells Fargo Economics (4/25); Univ. of South Carolina, Risk and Uncertainty Management Center.
10
Real GDP Growth Forecasts: Other Key Economies: 2024E – 2026F
7.7%
1.4%
2.4%
2.1%
3.2%
3.3%
3.6%
2.0%
4.3%
1.0%
1.0%
1.6%
2.0%
1.5%
1.4%
2.5%
2.1%
2.0%
1.4%
0.9%
4.1%
6.5%
1.5%
3.4%
-0.3%
2.9%
6.2%
6.3%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
India South
Korea
Taiwan Australia Brazil Mexico Russia
2023 2024 2025F 2026F
Growth in
India now
surpasses
China
Growth in many key
economies will likely be
revised downward as trade
war escalates
Source: IMF, World Economic Outlook, Apr. 2025 at: https://www.imf.org/en/Publications/WEO/Issues/2025/01/17/world-economic-outlook-update-january-2025
and Wells Fargo Economics (4/25); Univ. of South Carolina, Risk and Uncertainty Management Center.
11
Inflation: A Global Phenomenon – Outlook through 2025F
3.5%
1.2%
1.8%
2.9%
3.2%
0.7%
0.3%
1.2%
0.9%
0.0%
5.2%
2.4%
4.7%
3.1%
2.6%
4.7%
2.6%
-0.2%
5.9%
0.9%
8.7%
7.3%
8.4%
8.0%
8.4%
2.5%
9.8%
2.0%
6.7%
4.6%
5.4%
4.1%
7.3%
3.3%
8.1%
0.2%
3.9%
2.8%
2.4%
3.0%
2.5%
2.7%
4.8%
0.2%
3.9%
2.7%
2.3%
2.8%
3.0%
2.7%
4.8%
0.7%
5.1%
1.4%
1.8%
0.5%
-2%
0%
2%
4%
6%
8%
10%
12%
World Advanced
Econonomies
Eurozone US UK Japan Developing
Economies
China
2019 2020 2021 2022
2023 2024 2025F
Source: IMF and Wells Fargo Securities (Mar. 2025); Univ. of South Carolina, Risk and Uncertainty Management Center.
◼Inflation was a global phenomenon but tariffs stoking new fears
◼Inflation is far below its 2022-2023 peak in most major economies
◼For (re)insurers, impacts were immediate but rates have largely caught up
◼Inflation drove the need for tens of billions in additional (re)insurance capacity
Central Bank Key Policy Rates (As of April 8, 2025):
Easing Continues After the Global War on Inflation
Source: Wells Fargo Economics (4/25); USC Center for Risk and Uncertainty Management.
4.50%
4.50%
4.50%
5.00%
6.25%
9.00%
9.50%
14.25%
0.25%
0.50%
2.50%
2.75%
3.75%
4.10%
0% 2% 4% 6% 8% 10% 12% 14% 16%
Switzerland
Japan
Eurozone
Canada
New Zealand
Australia
United States
United Kingdon
Norway
Chile
India
Mexico
China
Brazil
Balancing inflationary
pressure of tariffs amid
weakening economies is a
difficult challenge for
some central banks
US Real GDP Growth, 2000 – 2026F*
* Estimates/Forecasts from Wells Fargo Securities.
Source: US Department of Commerce, Wells Fargo Securities (4/25); Center for Risk and Uncertainty Management, University of South Carolina.
2.7%
1.8%
-1.3%
-2.8%
2.5%
2.2%
2.7%
4.5%
0.8%
1.4%
3.5%
2.1%
1.2%
3.1%
3.2%
2.9%
2.5%
3.5%
2.9%
1.1%
2.4%
3.2%
1.9%
-5.1%
33.8%
4.5%
6.3%
6.7%
2.3%
6.9%
-2.0%
-0.6%
2.7%
2.6%
2.8%
2.5%
3.2%
1.6%
3.1%
2.3%
0.4%
2.1%
-1.0%
-1.2%
2.7%
3.0%
2.5%
2.7%
3.0%
4.4%
1.6%
2.8%
1.8%
4.1%
1.1%
1.8%
2.5%
3.6%
3.1%
-31.2%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
16:1Q
16:2Q
16:3Q
16:4Q
17:1Q
17:2Q
17:3Q
17:4Q
18:1Q
18:2Q
18:3Q
18:4Q
19:1Q
19:2Q
19:3Q
19:4Q
20:1Q
20:2Q
20:3Q
20:4Q
21:1Q
21:2Q
21:3Q
21:4Q
22:1Q
22:2Q
22:3Q
22:4Q
23:1Q
23:2Q
23:3Q
23:4Q
24:1Q
24:2Q
24:3Q
24:4Q
25:1Q
25:2Q
25:3Q
25:4Q
26:1Q
26:2Q
26:3Q
26:4Q
Demand for Insurance Increased Materially in 2021/22 During Recovery from the
Pandemic—Particularly in Economically Sensitive Commercial Lines Such as
WC. Premium growth will likely slow as Economy Slows.
Real GDP
Growth (%)
“Great
Recession”
began in
Dec. 2007
Financial
Crisis
COVID
CRASH
Q2 2020
plunged by
31.2%
“Soft landing” was achieved in 2024 and a
recession averted, with annual real GDP
growth at 2.8%. Growth is expected to slow in
2025 (to 1.3%) under the weight of tariffs and
associated higher inflation. Additional tax
cuts (beyond TCJA extension) should stabilize
growth in 2026 (2.3% est.).
The Economy Drives P/C Insurance Industry Premiums:
2006:Q1–2024E*
Direct Premium Growth (All P/C Lines) vs. Nominal GDP: Quarterly Y-o-Y Pct. Change
*2020-24 figures are annual.
Sources: SNL Financial; U.S. Commerce Dept., Bureau of Economic Analysis; ISO;, Swiss Re (2024E) I.I.I.; Risk and Uncertainty Management Center, University of South Carolina.
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
2008:Q1
2008:Q3
2009:Q1
2009:Q3
2010:Q1
2010:Q3
2011:Q1
2011:Q3
2012:Q1
2012:Q3
2013:Q1
2013:Q3
2014:Q1
2014:Q3
2015:Q1
2015:Q3
2016:Q1
2016:Q3
2017:Q1
2017:Q3
2018:Q1
2018:Q3
2019:Q1
2019:Q3
2020
2022
2024
DWP y-o-y change y-o-y nominal GDP growth
Premium growth slowed in 2020
due to the COVID recession and
has rebounded strongly in 2021 -
2024 with the overall economy
2022
DWP = +8.8%
Nom GDP = +9.1%
Direct written premiums track nominal GDP fairly tightly over time, suggesting the P/C
insurance industry’s growth prospects inextricably linked to economic performance.
+5.3%
+9.1%*
Global Non-Life Real Premium Growth, by Region
(2024 values in brackets)
Source: Swiss Re Institute, Sigma No 5/2024, Growth in the Shadow of (Geo)politics, accessed at: https://www.swissre.com/dam/jcr:dbe1695d-7cf9-4a14-bc37-
52465fe4789a/sri-sigma-global-economic-insurance-market-outlook-2025-2026.pdf; Risk & Uncertainty Management Center, University of South Carolina.
Advanced Markets
premium growth is
expected to slow,
while Emerging
Markets excluding
China are forecast
to grow in 2025-
2026
US Unemployment Rate Forecast: 2007:Q1–2026:Q4
4.5%
4.5%
4.6%
4.8%
4.9%
5.4%
6.1%
6.9%
8.1%
9.3%
9.6%
10.0%
9.7%
9.6%
9.6%
8.9%
9.1%
9.1%
8.7%
8.3%
8.2%
8.0%
7.8%
7.7%
7.6%
7.3%
7.0%
6.6%
6.2%
6.1%
5.7%
5.6%
5.4%
5.2%
5.0%
4.9%
4.9%
4.9%
4.7%
4.7%
4.4%
4.3%
4.1%
4.1%
3.9%
3.8%
3.8%
3.9%
3.6%
3.6%
3.5%
3.8%
13.1%
8.8%
6.8%
6.2%
5.9%
5.1%
3.8%
3.6%
3.6%
3.6%
3.5%
3.6%
3.7%
3.8%
4.0%
4.2%
4.1%
4.1%
4.3%
4.5%
4.6%
4.7%
4.6%
4.5%
4.4%
3.7%
4.2%
9.6%
3%
4%
5%
6%
7%
8%
9%
10%
11%
12%
13%
14%
Great Recession
Rising unemployment eroded
payrolls and WC’s exposure base.
Unemployment peaked at 10% in
late 2009.
= forecasts ; = actuals
Sources: US Bureau of Labor Statistics; Wells Fargo Securities (4/25 edition); Risk and Uncertainty Management Center, University of South Carolina.
US unemployment
rate peaked at
14.7% in April 2020
(13.1% Q2 avg.)
At 4.2% in Mar. 2025,
the unemployment
rate remains low, but
tariff impacts are
expected to push
unemployment
higher
3.1M jobs added in
2023 and 2.2M in
2024. Strong jobs
reports indicative of
labor market
resilience
Unemployment
rate is expected
due to the tariff-
induced economic
slowdown
17
The Fed Was on Final Approach for a Soft Landing Until Tariff
Turmoil Forced a Go Around – What Are the Possibilities Over
the Next 12 Months?
Source: Univ. of South Carolina, Risk and Uncertainty Management Center.
In a “no landing” scenario,
the economy averts a
recession altogether.
Soft Landing Hard Landing No Landing
0%
20%
40%
60%
80%
100%
Jan
17
Jul
17
Jan
18
Jul
18
Jan
19
Jul
19
Jan
20
Jul
20
Jan
21
Jul
21
Jan
22
Jun
22
Oct
22
Apr
23
Oct
23
Apr
24
Oct
24
Apr
25
Probability the U.S. Is in a Recession Within Next 12 Months:
Jan. 2017 – Apr. 2025*
*Jan. 2025 survey included the responses of 75 economists.
Source: Wall Street Journal surveys of economists: https://www.wsj.com/economy/central-banking/where-do-economists-think-were-headed-these-are-their-
predictions-b3db91ea?mod=hp_listb_pos1; Risk and Uncertainty Management Center, University of South Carolina.
Jan. 2025
Probability of
recession falls to
22% in January, just
before Trump
inauguration
COVID: 96%
chance of
recession
Before COVID,
economists
typically assessed
the risk of
recession within
the next 12 months
at 15% -18%
July 2021
Probability of
recession falls to
just 12%
Recession odds decreased
substantially since
2022…but tariff concerns are
pushing the odds back up
Recession?
The economy
achieved a “soft
landing” in 2024,
averting a recession
most thought would
result from higher
interest rates—but
tariffs are raising
recession worries
Oct. 2022
Probability of
recession peaked
at 64%
Apr. 2025
Probability of
recession soars to
45% from 22% in
January, as tariff
turmoil roils markets,
stokes inflation and
slowdown fears
19
P/C Insurance Industry Financial
Overview & Outlook:
Challenges Amid Inflation and Higher
Interest Rates
The Current Economic Environment
Presents Many Challenges for P/C Insurers
Industry Remains Strong
19
P/C Insurance Industry Combined Ratio, 2001–2024E*
*Excludes Mortgage & Financial Guaranty insurers 2008–2025F.
Sources: A.M. Best, ISO (2014-2017).
95.7
99.3
101.1
106.5
102.5
96.4
97.0
97.8
100.7
98.8
103.1
101.9
98.9
98.5
100.0
99.2
104.0
99.6
101.0
92.6
100.8
98.4
100.1
107.5
115.8
90
100
110
120
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24E
25F
As Recently as 2001,
Insurers Paid Out
Nearly $1.16 for Every
$1 in Earned
Premiums Relatively
Low CAT
Losses,
Reserve
Releases
Heavy Use of
Reinsurance
Lowered Net
Losses
Relatively
Low CAT
Losses,
Reserve
Releases
Higher
CAT
Losses,
Shrinking
Reserve
Releases,
Toll of Soft
Market
Lower
CAT
Losses
Sharply
higher CATs
are driving
large
underwriting
losses and
pricing
pressure
2022- 2023 were the
industry’s worst
underwriting years
performance since 2017
COVID-19 has
had no
discernable
net impact on
the combined
ratio in 2020
Best
Combined
Ratio Since
1949 (87.6) Sandy
Impacts
Ian &
Inflation
Impacts
2024E
98.9
Avg. CAT
Losses,
More
Reserve
Releases
P/C Direct Premiums Written Volume and Growth, 2010–2025F
$486.4
$487.1
$509.5
$537.5
$561.2
$583.8
$605.4
$634.2
$667.5
$701.5
$717.4
$784.8
$862.1
$951.6
$1,042.0
$1,083.7
0.2%
4.7%
5.5%
4.1%
3.6%
4.8%
4.9%
2.3%
9.4%
9.9%
10.4%
9.5%
4.0%
4.3%
5.4%
$0
$200
$400
$600
$800
$1,000
$1,200
10 11 12 13 14 15 16 17 18 19 20 21 22 23 24F 25F
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
DPW
DPW Growth
DPW growth peaked in 2023 at
10.4%, falling to 9.5% (est.) in
2024, with continued
deceleration expected in 2025
DPW, $ Millions
Sources: A.M. Best and NAIC (2010-2022); Forecast figures for 2024-25 from Swiss Re Institute (2024F-2025F) “US Property & Casualty Outlook: Dog Days are Over,” (June 2024),
accessed at: https://www.swissre.com/dam/jcr:b2178beb-350f-406e-8714-63ea4b3fe2e1/swiss-re-institute-us-pc-dog-days-are-over.pdf.
US P/C insurance will
become a trillion-dollar
industry in 2024 for the
first time (based on direct
premiums written)
Net Written Premium Growth (All P/C Lines):
Annual Change, 1971–2024
-5%
0%
5%
10%
15%
20%
25%
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
(Percent) 1975-78 1984-87 2000-03
NOTE: Shaded areas denote “hard market” periods.
Sources: A.M. Best (1971-2013), ISO (2014-21); NAIC (2022-2023); Verisk/APCIA (2024); Risk & Uncertainty Management Center, Univ. of South Carolina
Net Written Premiums
Fell 0.7% in 2007 (First
Decline Since 1943) by
2.0% in 2008, and 4.2%
in 2009, the First 3-
Year Decline Since
1930-33.
2023: 10.4%
2022: 8.3%
2021: 9.4%
2020: 2.4%
2019: 3.4%
2018: 10.7%
2017: 4.5%
2016: 2.7%
2015: 3.5%
COVID: 2.5%
Sharp recovery in
NWP post-COVID.
Strong economic
recovery and
favorable rate
environment both
powered growth.
2020-??
Shaded Areas = Hard Markets
E&S Market Direct Written Premium Trends
Sources: Data for 2018 – 2022: Fitch Ratings (Fitch Wire, Oct. 4, 2023) accessed at: https://www.fitchratings.com/research/insurance/us-excess-surplus-
insurance-market-outperformance-to-continue-04-10-2023; For 2023: Insurance Journal from WSIA, accessed at:
https://www.insurancejournal.com/news/national/2024/02/14/760715.htm#; Risk and Uncertainty Management Center, University of South Carolina.
E&S premium
grew by ~14.6%
in 2023, down
from 20% in
2022 (up 146%
since 2018),
approaching 9%
of the total P/C
market (up from
5.5% in 2018)
$64.8B
$54.2B
$40.9B
$34.4B
$29.6B
2023
$72.7B
P/C Industry Net Income After Taxes, 1991–2024E*
◼2012 ROAS1 = 5.9%
◼2013 ROAS1 = 10.2%
◼2014 ROAS1 = 8.4%
◼2015 ROAS = 8.4%
◼2016 ROAS = 6.2%
◼2017 ROAS =5.0%
◼2018 ROAS = 8.0%
◼2019: ROAS = 7.7%
◼2020: ROAS = 6.9%
◼2021: ROAS = 6.4%
◼2022: ROAS = 5.7%
*2023 and 2024 figures are adjusted is adjusted to reflect $50B realized gain from a large reinsurer (National Indemnity). Including this gain, net income after tax is $86.6B in 2023 and $94.7B in 2024:H1.
Note: ROE figures are GAAP; 1Return on avg. surplus. Excludes Mortgage & Financial Guaranty insurers for years (2009-2014).
Sources: A.M. Best, ISO, APCIA.
$14,178
$5,840
$19,316
$10,870
$20,598
$24,404
$36,819
$30,773
$21,865
$3,046
$30,029
$62,496
$3,043
$35,204
$19,456
$33,522
$63,784
$55,870
$56,826
$42,924
$36,813
$63,032
$61,445
$60,251
$61,886
$41,213
$38,600
$93,500
$83,400
$38,501
$20,559
$44,155
$65,777
-$6,970
$28,672
-$10,000
$10,000
$30,000
$50,000
$70,000
$90,000
$110,000
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
17
18
19
20
21
22
23*
24*
25E
Underwriting losses
increased in 2023,
pushing down net
income*
$ Millions
ROE: Property/Casualty Insurance by Major Event,
1987–2025F
26
*Excludes Mortgage & Financial Guarantee in 2008 – 2025F.
Sources: A.M. Best, ISO, Fortune, APCIA; USC RUM Center.
-5%
0%
5%
10%
15%
20%
87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24E25F
P/C Profitability Is
Influenced Both by
Cyclicality and Volatility
Hugo
Andrew,
Iniki
Northridge
Lowest
CAT
Losses in
15 Years
Sept. 11
Katrina,
Rita, Wilma
4 Hurricanes
Financial Crisis*
ROE fell by 8.3 pts
from 12.7% to 4.4%
(Percent)
Record
Tornado
Losses
Sandy
Low
CATs
Harvey,
Irma,
Maria,
CA
Wildfires
2024E*
9.4%
2020
6.9%
Covid-19
Ian
2025F*
6.9%
Upgrades, Downgrades and
M&A Activity
Underwriting Performance, CATs and
Capital Are Impacting Insurer Ratings
US P/C: Rating Upgrades & Downgrades, by Segment, 2024
Source: A.M. Best Review & Preview 2025 and 2024 from Carrier Management (March 16, 2025) at: https://www.carriermanagement.com/news/2025/03/16/273012.htm.
There were 43 ratings
downgrades in 2024,
down from 55 in 2023.
Personal lines
insurers accounted
for 31 (72%) of total
downgrades in 2024.
Capital and Capacity
P/C Insurance: Capitalized Crunch?
Will Industry Capacity Recover?
30
Policyholder Surplus (Capacity),
2006:Q4 – 2024F
Sources: ISO, A.M. Best, NAIC. Risk and Uncertainty
Management Center, University of South Carolina.
($ Billions)
$487.1
$496.6
$512.8
$521.8
$478.5
$455.6
$437.1
$463.0
$490.8
$511.5
$540.7
$530.5
$544.8
$559.2
$559.1
$538.6
$550.3
$567.8
$583.5
$586.9
$607.7
$614.0
$624.4
$653.4
$671.6
$673.9
$675.2
$674.2
$673.7
$676.3
$700.9
$717.0
$750.7
$781.5
$742.1
$779.5
$802.2
$812.2
$847.8
$771.9
$819.7
$865.1
$898.5
$1,060.2
$987.0
$1,011.4
$1,050.1
$662.0
$570.7
$566.5
$505.0
$515.6
$517.9
$400
$500
$600
$700
$800
$900
$1,000
$1,100
06:Q4
07:Q1
07:Q2
07:Q3
07:Q4
08:Q1
08:Q2
08:Q3
08:Q4
09:Q1
09:Q2
09:Q3
09:Q4
10:Q1
10:Q2
10:Q3
10:Q4
11:Q1
11:Q2
11:Q3
11:Q4
12:Q1
12:Q2
12:Q3
12:Q4
13:Q1
13:Q2
13:Q3
13:Q4
14:Q1
14:Q2
14:Q3
14:Q4
15:Q2
15:Q4
16:Q1
16:Q4
17:Q2
17:Q4
18:Q3
18:Q4
19:Q1
19:Q2
19:Q3
19:Q4
20:Q1
20:Q2
20:Q3
20:Q4
2021
2022
2023
2024F
Financial
Crisis
(-16.2%)
Drop due to near-record
2011 CAT losses
(-4.9%)
Policyholder Surplus is the industry’s financial
cushion against large insured events, periods of
economic stress and financial market volatility. It is
also a source of capital to underwrite new risks.
The P/C insurance industry entered the
COVID-19 pandemic from a position of
strength and was able to withstand the
9.0% surplus decline in Q1 2020 (far less
than during the Financial Crisis). 2020
ended with record surplus. 2021 set
another new record, exceeding $1 trillion
for the first time. Unrealized losses caused
surplus to drop sharply in 2022.
2022
(-6.9%)
Surplus
remains
below
2021
peak
Global Reinsurance Capital, 2015 – 2024
Source: Aon Reinsurance Solutions/Aon Securities accessed at: https://assets.aon.com/-/media/files/aon/reports/2025/reinsurance-market-
dynamics-apr-2025.pdf
$ Billions
Global reinsurance
reached a new high in
2024, but is only 5.9%
above its 2022 peak—far
below the increase that
would be needed to keep
pace with inflation and
exposure growth
Global reinsurance
capital fell by $100B or
14.8% in 2022,
contributing to recent
property insurance
challenges. Most of that
capital was recovered
in 2023—with ILS
playing a key role
32
0
50
100
150
200
250
300
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
(Percent)
US Property-CAT Reinsurance Pricing Is Sensitive to CAT Activity and Ultimately
Impacts Primary Insurance Pricing, Terms and Conditions.
Post-Andrew
surge
US Property Catastrophe Rate-on-Line Index: 1990 – 2025*
*As of January 1 each year.
Source: Guy Carpenter; Artemis.bm accessed at: http://www.artemis.bm/us-property-cat-rate-on-line-index
Post-9/11
Adjustment
Post Katrina,
Rita, Wilma
period
Post-Ike
adjustment Adjustment
following record
tornado losses
in 2011 and
Sandy in 2012
Property CAT reinsurance
pricing more than doubled
(+107.1%) from 2018 – 2024.
Record CAT activity and
inflation were major drivers.
2025 RoLs
US: -6.2%
Europe: -5.3%
Global: -6.6%
+35.0%
+76%
+68% -6.2%
Reinsurance Sector Combined Ratio, 2015 – 2024
Source: Company financial statements as compiled by Aon Reinsurance Solutions accessed at: https://assets.aon.com/-
/media/files/aon/reports/2025/reinsurance-market-dynamics-apr-2025.pdf
Reinsurer
underwriting
performance has
greatly improved
in recent years
Reinsurance Sector Ordinary Investment Yield, 2015 – 2024
Source: Company financial statements as compiled by Aon Reinsurance Solutions accessed at: https://assets.aon.com/-
/media/files/aon/reports/2025/reinsurance-market-dynamics-apr-2025.pdf
Reinsurer
investment
yields are up
signficantly in
recent years
Catastrophe Loss Trends
The Rise in CAT Losses Shows No Signs of Easing
The 2020s Are Off to an Ominous Beginning
The Los Angeles Wildfires, Hurricanes Helene and
Milton Are Just the Latest in a Long Series of
Mega-Disasters
California Fires (as of Apr. 21)
◼~18,000+ structures destroyed/damaged
◼~40,000 acres burned across all fires
◼29 confirmed fatalities
◼~170,000 residents were under evac. orders
◼~$37.5B: Insured Losses (Aon, Apr. 2025 est.)
$250B - $275B: Econ Loss Est.
◼CA FAIR Plan: Largest Exposure
Has $2.63B reins., co-reins, assessments
◼Issue rapidly politicized, Insurers demonized
U.S. Inflation-Adjusted Insured CAT Losses:
1980 – 2025:3M (est.)
*Stated in 2021 dollars except 2022 -2024 (in current dollars).
Sources: Property Claims Service, a Verisk Analytics business (1980-2019); 2020-22 figures from Munich Re; 2023, 2024,
2025:3M figure from Aon. Insurance Information Institute; University of South Carolina, Risk & Uncertainty Management Center.
44 40
85
112
57
1980s:$5 B
1990s: $16 B
2000s: $27 B
2010s: $37 B
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
$110
80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
Billions, 2021 $
Average for Decade
Hurricane
Andrew WTC
Katrina,
Rita, Wilma
Average Insured Loss per Year*
1980-2021: $23.8 Billion
2012-2021: $44.1 Billion
Harvey,
Irma, Maria
28
19 20
70
Ida ($36B)
TX Freeze ($15B)
The 2020s are off to an
ominous start with $83.5B
in average annual insured
losses (2020-23)
85
21 22
99
Ian 2022 became the
2nd costliest insured
CAT loss ever
80
23
112.5
24
Ian
($52.5B)
25:
3M
47.5
Top 26 Most Costly Disasters in U.S. History
39
(Insured Losses, 2024 Dollars, $ Billions)
$12.4
$12.8
$15.0
$16.0
$17.4
$18.1
$18.1
$20.3
$23.0
$25.0
$25.4
$28.0
$32.3
$33.2
$34.7
$37.5
$41.7
$56.3
$66.0
$12.1
$11.8
$10.6
$10.1
$9.6
$9.1
$0
$10
$20
$30
$40
$50
$60
$70
Rita
(2005)
Torn./T-
Storms
(2011)
Torn./T-
Storms
(2011)
Hugo
(1989)
Ivan
(2004)
Laura
(2020)
Charley
(2004)
M ichael
(2018)
Wilma
(2005)
Helene
(2024)
Winter
Storm Uri
(2021)
Camp Fire
(2018)
Ike
(2008)
Harvey
(2017)
Irma
(2017)
M ilton
(2024)
Sandy
(2012)
M aria
(2017)
Northridge
(1994)
9/11
(2001)
Andrew
(1992)
LA
Wildfires
(2025)*
Ida
(2021)
Ian (2022) Katrina
(2005)
Over the past 5 months (Sept.
2024 – Jan. 2025), the US has
experienced 3 of the costliest
disasters in US history, with
total losses likely exceed $60B
23 of the 26 Most Expensive Insurance Events in
US History Have Occurred Since 2004.
*2025 dollars; Munich Re estimates as of Jan. 2025 for Hurricanes Helene and Milton; Aon estimate as of Apr. 2025 for LA wildfires.
Sources: PCS, RMS, Aon, Karen Clark & Co; USC Center for Risk and Uncertainty Management adjustments to 2024 dollars using the CPI.
Los Angeles wilfires
in Jan. 2025 Ian in
2022 became the 4th
costliest insured
CAT loss ever
Top 11 Most Costly Wildfires in U.S. History
40
(Insured Losses, 2024 Dollars, $ Billions)
$4.2
$5.5
$12.0
$13.0
$37.5
$2.9
$3.0
$3.0
$3.5
$3.9
$4.0
$0
$5
$10
$15
$20
$25
$30
$35
$40
Marshall Fire
(2021) CO
CZU Complex
(2020) CA
Thomas Fire
(2017) CA
Glass Fire
(2020) CA
Tunnel Fire
(1991) CA
Atlas Fire
(2017) CA
Lahaina Fire
(2023) HI
Woolsey Fire
(2018) CA
Tubbs Fire
(2017) CA
Camp Fire
(2018) CA
2025 Los
Angeles
Fires*
The January 2025 Los
Angeles wildfire are all
but guaranteed to
become the costliest
US history
9 of the 11 Most Expensive Wildfire Events Occurred
in California. All but One Occurred Since 2017.
*Aon estimate as of Apr. 21, 2025
Sources: Artemis.bm from Gallagher Re at: https://www.reinsurancene.ws/insured-la-wildfire-losses-to-notably-exceed-10bn-gallagher-re/; USC Risk and
Uncertainty Management Center
42
Homeowners Insurance Combined Ratios: US,
2010 – 2025F
97.7%
113.9%
95.9%
83.3%
85.6%
86.3%
88.8%
112.1%
109.5%
94.4%
103.2%
105.3%
105.9%
103.6%
105.7%
104.5%
30%
40%
50%
60%
70%
80%
90%
100%
110%
120%
10 11 12 13 14 15 16 17 18 19 20 21 22 23 24E 25F
Combined
Ratio
The Homeowners combined
ratio from 2017-2023 (104.9) was
nearly 12 points higher from
than from 2010-2016 (93.1)
Sources: APCIA estimates using S&P Global Market Intelligence data; A.M. Best Review & Preview (Feb. 20, 2025) for 2024E – 2025F); University of South
Carolina, Risk & Uncertainty Management Center.
Average:
99.0% (2010-2023)
93.1 (2010-2016)
104.9% (2017-2023)
Economic Overview
The U.S. Economy Remains Resilient but
Consumer Gloom is Returning
43
Inflation, Geopolitical Conflicts, High Interest
Rates and Now Tariffs Have Weighed Heavily
on Business and Consumer Sentiment
Tariffs Will Increase Auto and
Property Claim Severities
43
Consumer Confidence: Popped After Election, But Is
Falling Since on Economic and Policy Concerns
Source: University of Michigan and Wells Fargo Economics.
Consumer optimism
about the future rose
after the election in
November, but has since
plunged amid concerns
about tariffs, resurgent
inflation and jobs
Consumer
confidence has
plunged to its lowest
level since 2022
(peak inflation) as
well as 2008-09
(Financial Crisis)
Consumer Inflation Expectations: Inflation Expectations
Are Rising—Especially for the Next Year
Source: University of Michigan and Wells Fargo Economics.
Short-term inflation
expectation in Apr.
rose to 6.7%
(highest since
1981), up from 2.6%
in late 2024. Tariff
concerns drove
much of the surge.
Consumer Sentiment by Political Affiliation
Source: Univ. of Michigan and Wells Fargo Economics (2/25).
Democrats are
very down on the
economy
Republican sentiment
surged after the election,
but fell recently amid
tariff concerns
Small Business Sentiment: Optimism Surged Post-Election
but Is Beginning to Recede on Tariff Concerns
Source: NFIB and Wells Fargo Economics.
Index of Small Business Optimism
(Index 1986 = 100)
Small businesses
optimism surged in
the wake of the
November election,
fueled by hopes of
lower taxes and less
regulation (similar to
2016). Tariff and
sales fears are now
leading to concerns.
48
16.9
16.5
16.1
13.2
10.4
11.6
12.7
14.4
15.5
16.4
17.4
17.5
17.1
17.2
17.0
14.5
14.9
13.8
15.5
15.8
15.1
15.2
16.9
16.6
17.1
17.5
17.8
17.4
9
10
11
12
13
14
15
16
17
18
19
99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25F 26F
(Millions of Units)
Auto/Light Truck Sales, 1999-2026F
New auto/light truck
sales fell to the
lowest level since
the late 1960s.
Job growth and
improved credit market
conditions boosted auto
sales to near record
levels by 2015/16
New vehicle purchases
were constrained by
supply chain problems,
higher interest rates
Yearly car/light truck sales remain below pre-COVID levels. Auto
manufacturer supply chain issues are largely resolved but vehicle financing
costs remain stubbornly elevated and tariffs will push up new car prices,
resulting in downward sales pressure in 2025-26
Source: U.S. Department of Commerce; Wells Fargo Securities (4/25); Univ. of South Carolina, Center for Risk and Uncertainty Management..
New vehicle
sales are
expected to
fall as
interest
rates remain
elevated
and tariffs
increase the
price of new
vehicles
49
(Millions of Units)
New Private Housing Starts, 1990-2026F
1.48
1.47
1.62
1.64
1.57
1.60
1.71
1.85
1.96
2.07
1.80
1.36
0.91
0.55
0.59
0.61
0.78
0.92
1.00
1.11
1.17
1.20
1.26
1.29
1.38
1.60
1.55
1.42
1.37
1.32
1.37
1.35
1.46
1.29
1.20
1.01
1.19
0.3
0.5
0.7
0.9
1.1
1.3
1.5
1.7
1.9
2.1
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25F26F
Source: U.S. Department of Commerce; Wells Fargo Securities (4/25); Univ. of South Carolina, Center for Risk and Uncertainty Management..
Insurers Are Continue to See Meaningful Exposure Growth in the Homeowners
Line as well as Lines Associated with Home Construction: Construction Risk
Exposure, Surety, Commercial Auto; Potent Driver of Workers Comp Exposure
New home starts
plunged 72% from 2005-
2009; A net annual
decline of 1.49 million
units, lowest since
records began in 1959
Job growth, low
inventories of existing
homes, low mortgage
interest rates and
demographics
propelled new home
construction into 2022,
though materials
prices, supply chain
problems, lack of labor
were headwinds
High prices, rising
mortgage rates,
tempered new home
construction activity
through 2024, though
low inventory of existing
homes is propping up
demand. Mortgage rates
remain elevated, and
tariffs will push up
prices, tempering
housing starts in 2025
and 2026
No Repeat of the
Housing Collapse that
Began in 2007
Nonresidential Construction Put in Place, Feb. 2025
(Year-over-Year % Change)
Source: U.S. Department of Labor and Wells Fargo Economics.
Data center
construction was up
1.7% in Feb. and
38.8% over the prior
12 months
Overall construction
was up 3.9% over the
prior 12 months.
51
Nonfarm Payroll (Wages and Salaries):
Quarterly, 2005:Q1–2024:Q4
Note: Recession indicated by gray shaded column. Data are seasonally adjusted annual rates.
Sources: http://research.stlouisfed.org/fred2/series/WASCUR; National Bureau of Economic Research (recession dates).
Billions
$5,500
$5,750
$6,000
$6,250
$6,500
$6,750
$7,000
$7,250
$7,500
$7,750
$8,000
$8,250
$8,500
$8,750
$9,000
$9,250
$9,500
$9,750
$10,000
$10,250
$10,500
$10,750
$11,000
$11,250
$11,500
$11,750
$12,000
$12,250
$12,500
$12,750
$13,000
05:Q1
05:Q2
05:Q3
05:Q4
06:Q1
06:Q2
06:Q3
06:Q4
07:Q1
07:Q2
07:Q3
07:Q4
08:Q1
08:Q2
08:Q3
08:Q4
09:Q1
09:Q2
09:Q3
09:Q4
10:Q1
10:Q2
10:Q3
10:Q4
11:Q1
11:Q2
11:Q3
11:Q4
12:Q1
12:Q2
12:Q3
12:Q4
13:Q1
13:Q2
13:Q3
13:Q4
14:Q1
14:Q2
14:Q3
14:Q4
15:Q1
15:Q2
15:Q3
15:Q4
16:Q1
16:Q2
16:Q3
16:Q4
17:Q1
17:Q2
17:Q3
17:Q4
18:Q1
18:Q2
18:Q3
18:Q4
19:Q1
19:Q2
19:Q3
19:Q4
20:Q1
20:Q2
20:Q3
20:Q4
21:Q1
21:Q2
21:Q3
21:Q4
22:Q1
22:Q2
22:Q3
22:Q4
23:Q1
23:Q2
23:Q3
23:Q4
24:Q1
24:Q2
24:Q3
24:Q4
Pre-Crisis Peak
was 2008:Q3 at
$6.54 trillion
Financial crisis
trough (2009:Q1)
was $6.23 trillion,
down 5.3% from
prior peak
Growth rates
2024: 5.9%
2023: 5.4%
2022: 7.8%
2021: 9.0%
2020: 1.5%
2019: 4.8%
2018: 4.6%
2017: 4.5%
2016: 3.4%
2015: 3.2%
2014: 4.9%
2013: 5.2%
2012: 2.3%
2011: 3.9%
2010: 5.5%
51
COVID trough (2020:Q2)
was $9.0 trillion—a
$627 billion (6.5%)
plunge from its Q1 pre-
COVID peak
Payrolls rapidly recovered from
the COVID-plunge and stand at a
record $12.6 trillion as of
Q4:2024—pushing up WC
payroll exposures significantly
$0
$5
$10
$15
$20
$25
$30
$35
$40
66 69 72 75 78 81 84 87 90 93 96 99 02 05 08 11 14 17 20 23
U.S. National Debt, 1966 – 2024:Q4
Source: Congressional Budget Office; Federal Reserve Bank of St. Louis: https://fred.stlouisfed.org/series/GFDEBTN.
The national debt hit $36.2
Trillion in Q4 2024 and will
continue to grow rapidly for the
foreseeable future.
Debt/GDP Ratio = ~120%
(Nearly the Highest Since WW II)
$36.2 Trillion
($ Trillions)
18
Large deficits
that increase
as a share of
GDP are, at
some point,
unsustainable
and
inflationary
“A Little Disturbance” & “Getting Yippy”
How Will US Policy Shifts Impact the P/C
Insurance Industry?
53
Inflation, Fiscal Policy, Trade Policy,
Geopolitical Conflicts and High Interest Rates
Have Weighed Heavily on Business and
Consumer Sentiment
Tariffs Will Increase Auto and
Property Claim Severities
53
Tariff Time Line
◼Feb. 4: 10% on all Chinese products
China retaliates with tariffs on US coal, LNG, crude oil, ag machinery, large cars
◼Mar. 4: US imposed 25% tariffs on all imports from Mexico & Canada and addl. 10% on
Chinese goods
Canada announced retaliatory tariffs on $100B on US goods
Mexico: Will announce tariffs against US on March 9
China imposes 15% tariff on addition US goods, effective March 10
◼Mar. 12: New/additional tariffs on steel/aluminum totaling 25%
◼April 2: “Reciprocal tariffs” implemented (“Liberation Day”) in 11% - 57% range
◼Apr. 3: 25% tariffs on foreign autos and parts (excl. USMCA compliant)
◼Apr. 5: 10% tariffs on virtually imports become effective
Tariff Time Line (cont’d)
◼Apr. 9: 90-day pause on “reciprocal” tariffs imposed; Tariffs on China increased to 145%
China increases tariffs on US imports to 125%
Apr. 12: Trump exempts certain electronics from 125% reciprocal tariff (20% in other tariffs remain)
Apr. 13: Trump says exemptions temporary and will be new tariffs on semiconductors pending a
study
◼Apr.: ?? More tariffs against EU threatened, esp. for pharmaceuticals
◼Oct. 2025: Proposed USTR port fees on Chinese vessels starting at $50 per net ton rising $30
per net ton each year to $140/ton by 2028
US Service Exports, by Country
Source: US Commerce Dept. from Wall Street Journal (4/10/25): “Trump’s Trade Math Ignores Major Export: American Services.” Available
at: https://www.wsj.com/economy/trade/us-exports-services-trump-tariff-calculations-fe481e2b.
Trump Administration
totally ignores the fact
that the US runs a large
surplus in Service
exports. Insurance is
one of the largest US
Service exports.
Current policy focuses
entirely on goods,
which is economically
nonsensical.
Insurance Lines/Segments Impacted by Tariffs
Line/Segment
Risk
Consequences
Personal Auto
Tariffs imposed on most vehicles and parts
Rising physical damage severities
→
Rate increases
Commercial
Auto
Tariffs imposed on most vehicles and parts
Rising physical damage severities
→
Rate increases
Ocean Marine
Decreased transoceanic shipping
Hull and cargo exposures shrink
→
P
remium volume falls
Residential &
Commercial
Property
Tariffs imposed on many important
construction goods, electronics, appliances,
etc.
Rising property claim severities
→
Rate increases, Limits become
inadequate (ITV)
Inland Marine
Tariffs reduce cargo transport volumes
Exposures shrink
→
Premium volume falls
Aviation
Tariffs reduce air cargo volumes; Economic
uncertainty and hostility toward US allies is
reducing travel demand.
Exposures shrink
→
Premium volume falls
Source: University of South Carolina, Risk & Uncertainty Management Center.
Insurance Lines/Segments Impacted by Tariffs (cont’d)
Line/Segment
Risk
Consequence
Trade Credit
Decreased international trade
Exposures shrink
→
Premium volume falls
Farm/Ag
Retaliatory tariffs against US ag exports
Lower farm production/income
→
Premium volumes falls
USL&H
Decreased import and export activity at US
ports reduces port employment
Exposures fall
→
Premium volume slows or shrinks
Workers
Comp.
Economic slowdown results in higher
unemployment rate
Reduced payroll exposure
→
Premium volumes slows or shrinks
Source: University of South Carolina, Risk & Uncertainty Management Center.
Average Weighted Tariffs on US Imports, 1900 – 2025*
*As of March 25, 2025.
Source: Tax Foundation as published in the Wall Street Journal, March 25, 2025; Available at: https://www.wsj.com/economy/trade/trade-
war-explodes-across-world-at-pace-not-seen-in-decades-0b6d6513?mod=hp_lead_pos1.
The proliferation of harmful
trade restrictions is
unambiguously detrimental
to globally-focused
industries, including
insurance and reinsurance
Proposed tariffs are
projected to reduce
trade between the US
and its major trading
partners by 1% to 4%,
depending on the
degree of retaliation
Proposed tariffs
would push the
average tariff rate to
their highest levels
since the 1930s
March 2025
8.4%
1933
19.8%
2024
2.5%
Average Weighted Tariffs on US Imports, 1940 – 2025*
*Estimates as of April 9, 2025. **Reflects 90-day “reciprocal” tariff pause.
Source: US Dept. of Commerce and Wells Fargo Economics.
The proliferation of harmful
trade restrictions is
unambiguously detrimental
to globally-focused
industries, including
insurance and reinsurance
Proposed tariffs are
projected to reduce
trade between the US
and its major trading
partners by 1% to 4%,
depending on the
degree of retaliation
2024
2.5%
China
144%
Proposed tariffs
would push the
average tariff rate to
their highest levels
since the 1930s
World
30%
World Ex.China**
12%
The Inflation Threat
Inflation Has Been the #1 Concern of
U.S. Consumers and Corporations…
And a Major Concern of Insurers
Is the Threat Finally Subsiding?
U.S. Inflation Rate: 2009-2026F*
Source: U.S. Bureau of Labor Statistics; Wells Fargo Securities (4/25); USC Center for Risk and Uncertainty Management.
Percentage Change (%)
0.1%
1.3%
2.1%
2.4%
1.8%
1.2%
4.7%
8.0%
4.1%
3.0%
2.8%
2.9%
-0.4%
1.6%
3.2%
2.1%
1.5%
1.6%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25F 26F
There’s concern that the
Fed may need to keep rates
higher for longer to achieve
its 2% inflation target
*Annual change in Consumer Price Index for All Urban Consumers (CPI-U).
Inflation accelerated sharply in
2021 before peaking at 9.1% in
June 2022. Inflation was nearly
halved in 2023 and fell further in
2024, but will remain above the
Fed’s 2% target in 2025-26
Insurer Concerns
About Inflation
Rate Inadequacy
Reserve
Inadequacy
Insurance-to-Value
Inflation projections for
2025-26 have been
revised upwards
Cost Indicators for Residential Const., Price Index Changes,
Jan. 2020 – Dec. 2024
22.8%
33.4%
38.5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
CPI--All Items PPI--Res. Construction
Trade Services
PPI--Construction
Materials
Source: U.S. Bureau of Labor Statistics from Federal Reserve Bank of St. Louis: https://fred.stlouisfed.org/series/WPUIP23111021 (Trade Services)
and https://fred.stlouisfed.org/series/WPUSI012011 (Construction Materials).
The cost of construction
materials and labor has
increased at a pace far above
that of the overall CPI
PPI: Net Inputs to Residential Construction, Goods,
Jan. 2019 – Dec. 2024
Sources: Federal Reserve Bank of St. Louis from US Bureau of Labor Statistics: https://fred.stlouisfed.org/series/WPUIP2311001; Risk and Uncertainty Management
Center, University of South Carolina.
The cost of Residential
Construction materials
surged during the
pandemic, +41.2% from Jan.
2020 before peaking in June
2022, putting significant
pressure on home insurers
The cost of Residential
Construction materials
peaked in 2022 and has
remained virtually
unchanged since
Price Index Changes for Motor Vehicle Parts & Equipment,
Jan. 2020 – Dec. 2024
Sources: US Bureau of Labor Statistics: https://fred.stlouisfed.org/series/CUUR0000SETC; Risk and Uncertainty Management Center, University of South Carolina.
Motor Vehicle Parts & Equipment prices
surged during the pandemic, +22.9%
from Jan. 2020 before peaking in May
2023—putting significant pressure on
the overall CPI (new and used vehicles
account for 8.1% of the index and
gasoline 3.3% —auto insurance is 2.5% )
Motor Vehicle & Equipment
prices in recent months
have fallen, albeit very
modestly, and still remain
above pre-Covid levels,
+22.4% as of Dec. 2024
Price Index for New Vehicles,
Jan. 2020 – Dec. 2024
Sources: US Bureau of Labor Statistics; Risk and Uncertainty Management Center: https://fred.stlouisfed.org/series/CUUR0000SETA01; University of South Carolina.
Realistically, new vehicle prices will
likely never return to pre-pandemic
levels—supply/demand imbalances,
technology, tariffs, EV transition will
support an upward trend
New vehicle prices surged during and after
the pandemic, +22.1% from Jan. 2020 to
Sept. 2023 (peak), putting significant
pressure on the overall CPI and auto
insurance rates (new and used vehicles
account for 8.1% of the index and gasoline
3.3% —auto insurance is 2.5% ). Prices
seem to have plateaued in late 2023
New car prices in recent
months have begun to fall, but
only slightly and still remain
well above pre-Covid levels,
+20.6% as of Dec. 2024
(2.0)
0.0
2.0
4.0
6.0
8.0
10.0
Jan
20
Apr
20
Jul
20
Oct
20
Jan
21
Apr
21
Jul
21
Oct
21
Jan
22
Apr
22
Jul
22
Oct
22
Jan
23
Apr
23
Jul
23
Oct
23
Jan
24
Apr
24
Jul
24
Oct
24
Jan
25
Change in Medical CPI
CPI-All Items
Medical Cost Inflation vs. Overall CPI Since COVID,
Jan. 2020 – Feb. 2025 (Percent Change from Year Ago)
Sources: US Bureau of Labor Statistics via Federal Reserve Bank of St. Louis: https://fred.stlouisfed.org/series/CPIMEDSL; Risk and Uncertainty Management Center, University of South Carolina.
Jan 2020 – Feb 2021
Healthcare: 3.8%
Overall: 1.3%
Medical inflation accelerated in
late 2023 through mid-2024 but is
now rising at about the same
pace as the overall inflation (as
measured by the CPI)
All Items CPI
Feb. 2025: 2.8%
Medical Inflation
Feb. 2025: 2.9%
Mar 2021 – Nov 2022
Healthcare: 2.6%
Overall: 6.8%
Jan 2020 – Dec 2022
Healthcare: 3.1
Overall: 4.6%
68
Commercial Lines Growth
& Pricing Cyclicality
Economic and Tort Environment Create
Pricing Pressure
68
Change in Commercial Rate Renewals, by Line:
2024:Q4
Source: Council of Insurance Agents and Brokers; USC Center for Risk and Uncertainty Management.
(Percent Change)
1.9%
2.0%
2.0%
2.2%
3.0%
3.2%
5.3%
6.0%
8.7%
8.9%
-1.8%
-1.8%
-1.5%
-0.2%
0.1%
0.2%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
Cyber
Workers
Comp
D&O
EPL
Surety
Terrorism
Medical
Malpractice
Broker E&O
Flood
Marine
Construction
Business
Interruption
General
Liability
Commercial
Property
Commercial
Umbrella
Commercial
Auto
An increasing number of
lines are flat or declining
Note: CIAB data cited here are based on a survey. Rate changes earned by individual insurers can and do vary, potentially substantially.
Commercial Auto and Umbrella are adversely
impacted by legal system abuse/social
inflation. Commercial Property is experiencing
sharp increases due to high CAT losses,
inflation and expensive reinsurance.
WC rates have been
basically flat or
slightly down for
several years, due
to strong
underwriting results
CIAB: Average Commercial Rate Change, All Lines,
2011:Q1–2024:Q4
-0.1%
0.9%
2.7%
4.4%
4.3%
3.9%
5.0%
5.2%
4.3%
3.4%
2.1%
1.5%
-0.5%
0.1%
-0.7%
-2.3%
-3.3%
-3.1%
-2.8%
-3.7%
-3.9%
-3.2%
-3.3%
-2.5%
-2.8%
-1.3%
0.3%
1.7%
2.4%
3.5%
5.2%
6.2%
7.5%
9.3%
10.8%
11.7%
10.7%
10.0%
8.3%
8.9%
8.7%
6.6%
7.1%
8.1%
8.0%
8.8%
8.9%
8.1%
7.0%
7.7%
5.2%
5.1%
5.4%
1.5%
1.6%
-2.9%
-16%
-11%
-6%
-1%
4%
9%
14%
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
4Q18
1Q19
2Q19
3Q19
4Q19
1Q20
2Q20
3Q20
4Q20
1Q21
2Q21
3Q21
4Q21
1Q22
2Q22
3Q22
4Q22
1Q23
2Q23
3Q23
4Q23
1Q24
2Q24
3Q24
4Q24
Note: CIAB data cited here are based on a survey. Rate changes earned by individual insurers can and do vary, potentially substantially.
Source: Council of Insurance Agents & Brokers; Center for Risk and Uncertainty Management, Univ. of South Carolina.
Rate increases peaked
in 2020 but continued
throughout 2021-2024
(Percent)
Renewals turned
positive in late 2011
in the wake of
record tornado
losses and
Superstorm Sandy
High CAT losses and poor underwriting results in
recent years combined with inflation, litigation,
reduced capacity, higher reinsurance costs, lower
interest rates (until 2022) and increased
uncertainty have exerted significant pressure on
markets with overall rates up materially
Smallest increases
since 2019
Investments:
Wall Street’s Wild Ride Continues
Investment Performance Is a Key Driver
of Insurer Profitability
How Has the Hawkish Fed Impacted
Insurer Portfolios?
Property/Casualty Insurance Industry Investment Income:
2000–2024F*
$38.9
$37.1
$36.7
$38.7
$54.6
$51.2
$47.1
$47.6
$49.2
$48.0
$47.3
$46.4
$47.2
$46.6
$50.0
$57.0
$57.3
$53.2
$71.5
$75.9
$86.9
$56.1
$39.6
$49.5
$52.3
$30
$40
$50
$60
$70
$80
$90
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18* 19 20 21 22* 23E 24F
Due to persistently low interest rates, investment income remained below pre-crisis levels for
a decade. Lower interest rates during COVID drove investment income down once again.
Fed rate hikes in 2022-23 are reversing this trend.
* 2018-19 figures are distorted by provisions of the TCJA of 2017. Increase reflects such items as dividends from foreign subsidiaries.
**2022 figure includes a $10.8B intercompany distribution by a large reinsurer that flowed through NII.
1 Investment gains consist primarily of interest and stock dividends. Sources: A.M. Best Review & Preview (March 2024); ISO; University of South Carolina, Center for Risk
and Uncertainty Management.
($ Billions)
Aggressive Fed actions in response
to COVID and recession pushed
interest rates lower in 2020, adversely
impacting investment income
Higher interest rates
are pushing
investment income
sharply upward
Net Investment Yield on Property/Casualty
Insurance Invested Assets, 2007–2025F
4.4
4.0
4.6
4.5
3.7
3.8
3.7
3.4
3.7
3.2
3.1
3.1
3.4
3.1
3.3
2.6
2.8
3.5
3.7
4.1
4.6
4.2
3.9
2.5
3.0
3.5
4.0
4.5
5.0
03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23E 24F 25F
The yield on invested assets remains depressed relative
to pre-financial crisis and pre-COVID yields. Fed rate hikes
in 2022-23 are lifting yields and investment income.
Sources: NAIC data, sourced from S&P Global Market Intelligence; 2017-19 figures are from ISO. 2020-22 data from APCIA. 2023E-25FP from Swiss Re (Jan. 2024). Risk and Uncertainty
Management Center, Univ. of South Carolina.
(Percent) Investment yields in 2021 were
depressed--down about 200 BP
from pre-crisis (and 50-80BP
from pre-COVID) but are now
rising. Yields in 2021 were the
lowest since at least 1960.
Average: 1960-2019 = 4.9%
Low: 2.8% (1961)
High: 8.2% (1984/85)
By 2025,
investment yields
could be the
highest since the
Financial Crisis
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
50
52
54
56
58
60
62
64
66
68
70
72
74
76
78
80
82
84
86
88
90
92
94
96
98
00
02
04
06
08
10
12
14
16
18
20
22
24
*Through April 21, 2025.
Source: NYU Stern School of Business: http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html;
Center for Risk and Uncertainty Management, University of South Carolina.
Tech Bubble
Implosion
Financial
Crisis
Annual Return
Energy Crisis
S&P 500 Index Returns, 1950–2025*
Fed Raises
Rates
2022
-19.4%
2024: +25.0%
2023: +24.2%
2022: -19.4%
2021: +26.9%
2020: +16.2%
2019: +28.9%
2018: -6.2%
2017: +19.4
COVID-19
Inflation forced the Fed to tighten, sending the stock market into
correction territory in 2022. Stocks recovered in 2023 with a
surprisingly resilient economy; Growth, anticipated rate cuts and AI
mania pushed stocks up in 2024. Markets plunged in Q1 2025 under
the threat of tariffs, policy uncertainty and rising recession risks.
2025*
-12.8%
2024
25.0%
76
Legal System Abuse (Social Inflation) &
Litigation Trends
76
Rising Litigation Costs Are a Concern for
Businesses Large and Small—and Their Insurers
Major Driver of Rate Across Multiple Lines
Social Inflation: Many Interrelated Causes, Difficult to Manage
Source:Risk and Uncertainty Management Center, Univ. of South Carolina, adapted from Verisk “Social Inflation” presentation (2020).
INSURANCE CLAIM COSTS
Increasing
Propensity
to Sue
Size of
Jury
Awards
Courts/
Juries
Favoring
Plaintiffs
Growing
Distrust of
Large
Corps.
Litigation
Financing
Aggressive
Plaintiff
Bar Ads
Changes in
Regulatory and
Legal Environment
Bar Ads
Applied to a seemingly limitless number of
issues, these drivers are pushing tort costs
(and therefore claim costs upward)
Source: US Chamber of Commerce Institute for Legal Reform (Nov. 2024), “Tort Costs in America: An Empirical Analysis of Costs and Compensation of the
U.S. Tort System” (3rd Edition) accessed at: https://instituteforlegalreform.com/research/tort-costs-in-america-an-empirical-analysis-of-costs-and-
compensation-in-the-u-s-tort-system-third-edition/. Risk and Uncertainty Management Center, Univ. of South Carolina.
Tort Costs as Percent of State GDP, by State (2022)
Auto
Accident
Medical
Liability
Premises
Liability
Products
Liability
On a Per
Household
basis, the US
“tort tax”
equated to
$4,207 in 2022
Tort costs as a share
of GDP stood at
2.07% for the US
overall in 2022 but
are materially higher
in the Southeast
Source: US Chamber of Commerce Institute for Legal Reform (Sept. 2022), “Nuclear Verdicts: Trends, Causes and Solutions,” accessed at:
https://instituteforlegalreform.com/research/nuclear-verdicts-trends-causes-and-solutions/. Risk and Uncertainty Management Center, Univ. of SC.
Median Nuclear Verdict and Trend Line: 2010 – 2019*
Auto
Accident
Medical
Liability
Premises
Liability
Products
Liability
All Nuclear Verdicts
+27.5% from $19.3M in
2010 to $24.6M in 2019
Auto Accident
+63.2% from $15.2M in
2010 to $24.8M in 2019
Products Liability
+53.2% from $23.0M in
2010 to $35.1M in 2019
*The ILR defines a nuclear
verdict as a jury verdict of
$10M or more.
Source: US Chamber of Commerce Institute for Legal Reform (Nov. 2024), “Tort Costs in America: An Empirical Analysis of Costs and Compensation of the
U.S. Tort System” (3rd Edition) accessed at: https://instituteforlegalreform.com/research/tort-costs-in-america-an-empirical-analysis-of-costs-and-
compensation-in-the-u-s-tort-system-third-edition/; Risk and Uncertainty Management Center, Univ. of South Carolina.
Tort Costs Over Time by Category, 2016 - 2022 ($Bill) (2022)
Auto
Accident
Medical
Liability
Premises
Liability
Products
Liability
Increases in tort
liability costs are
driven primarily by
Commercial lines,
which are grew at
and average annual
rate 8.7% from 2016
– 2022, compared to
3.9% for Personal
lines
The US “tort tax”
equated to $4,207
per household in
2022
Source: US Chamber of Commerce Institute for Legal Reform (Nov. 2022), “Tort Costs in America: An Empirical Analysis of Costs and Compensation of the
U.S. Tort System” accessed at: https://instituteforlegalreform.com/research/tort-costs-in-america-an-empirical-analysis-of-costs-and-compensation-of-the-u-
s-tort-system/. Risk and Uncertainty Management Center, Univ. of South Carolina.
Change in Tort Costs Over Time: 2016 – 2022
Auto
Accident
Medical
Liability
Premises
Liability
Products
Liability
2016
~$2,800
2016
1.88%
2022
$4,207
2020
2.07%
The
Household
“Tort Tax” hit
$4,207 in
2022, up
about 50%
since 2016
82
SUMMARY
◼Global Economic Outlook for 2025-2026 Is Challenging
◼Tariffs—if Fully Implemented and Maintained—are Somewhat “Stagflationary”
◼“Soft Landing” Jeopardized; Recession Still Unlikely but Odds Are Increasing
◼The US P/C Insurance Industry Remains Strong, Stable, Sound and Secure
Auto lines, property and reinsurance segments were stressed but are improving
◼Loss Cost Challenges Have Been Easing, but Changes in Fiscal, Trade and Labor
Policies in 2025 Could Exert Inflationary Pressures
Tariffs would adversely impact auto and property claim severities; Reduce exposures
◼Asset Price Volatility Will Persist with Monetary Policy, Fiscal, Geopolitical Uncertainty
◼Higher Interest Rates Are Providing a Modest Tailwind for Investment Income
◼Legal System Abuse Issues Remain a Long-Term Challenge and Major Cost Driver
