S&P Forecasts Stable Profitability for US P&C Insurance Amid Mixed Line Performance in 2025
According to S&P Global Market Intelligence's 2025 US Property and Casualty Insurance Market Report, the US P&C insurance sector is expected to remain profitable through 2025 and 2026, driven primarily by a strong rebound in the private auto insurance sector in 2024. The overall industry combined ratio is forecasted to be 99.2% in 2025, higher than the 11-year low of 96.5% recorded in 2024, with the rise attributed in part to significant losses from the southern California wildfires. Despite these losses, underwriting results in the private auto line remain robust, though some insurers have begun lowering rates, which will impact top-line growth.
The report highlights concerns about rate softening trends in catastrophe-exposed commercial property lines and projects a slowdown in industry-wide direct premiums growth to 6.8% in 2025, the lowest in five years. This forecast assumes a relatively stable macroeconomic environment characterized by modest GDP growth, slight underemployment rises, and a gradual shift towards lower interest rates. Analysts maintain a cautious stance on potential losses from natural catastrophe events such as wildfires and severe storms, noting that continued pricing and underwriting discipline will be critical to managing risk exposure.
Within personal lines, while private auto insurance shows a projected improvement with a combined ratio of 95.1% in 2025 marking recovery from historically poor performance just three years prior, the homeowners insurance line faces persistent challenges. The homeowners combined ratio is forecasted at 106.1%, marking seven occurrences of ratios exceeding 103% in the past nine years. Rising losses, including those from recent wildfires, and tight policy terms and conditions have intensified scrutiny on homeowners insurance availability and affordability.
Commercial lines present a mixed outlook with casualty segments like commercial auto liability and product liability affected by social inflation, leading to increased reserves and underwriting losses. Product and other liability lines saw a sharp increase in combined ratios to 109.3% in 2024, signaling ongoing pricing and reserve adequacy challenges despite past periods of profitability. Commercial auto lines continue to struggle for sustained profitability despite rate increases and technology-driven safety improvements.
Conversely, workers' compensation insurance continues to demonstrate stable profitability with a consistent combined ratio below 90%, supported by shifts such as the return to in-person work and controlled medical cost inflation. The report notes that for only the second time in over a decade, personal lines are expected to outperform commercial lines in profitability metrics.
The overall outlook reflects a cautious yet steady normalization of underwriting results across sectors within the P&C market, emphasizing the importance of underwriting discipline, pricing adequacy, and risk management amidst evolving loss trends and external economic factors. Continued attention to natural catastrophe impacts and social inflation effects remains critical for carriers aiming to sustain profitability.