The US property and casualty (P&C) insurance sector is facing potential pressure on investment portfolios following a broad global sell-off in equities. However, the overall impact is disproportionately influenced by one company’s significant exposure to publicly traded common stocks.
As of year-end 2024, unaffiliated publicly traded common stock holdings by US P&C insurers totaled $440.35 billion, accounting for 17.7% of the industry’s net admitted cash and invested assets, according to an S&P Global Market Intelligence analysis of annual statutory filings.
Nearly 57% of that exposure came from subsidiaries of Berkshire Hathaway Inc, which reported $249.61 billion in stock holdings. This marked a notable decrease from the prior year’s $323.13 billion, reflecting Berkshire’s move toward cash and short-term investments.
Despite that decline, the company maintained the industry’s largest position by a wide margin. Berkshire and State Farm Mutual Automobile Insurance Co. had 47.6% and 39.6%, respectively, of their net admitted cash and invested assets in common stocks. By comparison, the rest of the industry collectively held 5.1%.
If valuations of stocks held by P&C insurers excluding Berkshire were to fall in line with the S&P 500 Index’s year-to-date decline of 13.2% through April 7, this could lead to a reduction of approximately $26.61 billion – or 2.4% – in aggregate policyholders’ surplus, due to unrealized losses.=
Meanwhile, a growing number of US life and annuity insurers are ceding business to sidecars. A report from AM Best notes that the use of these structures has tripled since 2021, with about a dozen companies utilizing them by the end of 2023.
Sidecars – traditionally associated with property and casualty insurers – are being adopted in the life and annuity segment as companies seek alternative ways to manage capital amid rising premium volumes.
Ceded reserves to sidecars have also increased threefold over the two-year period.
Because the market volatility largely occurred after the close of the first quarter, S&P notes that any adverse effects on insurer balance sheets and capital levels will take time to materialize. Still, underlying macroeconomic concerns – ranging from inflationary pressures to weakening earnings expectations – may contribute to further strain.
Most P&C insurers remain heavily invested in fixed-income instruments. Excluding Berkshire, government securities, investment-grade corporate bonds, and agency-issued instruments made up nearly 52.9% of industry assets at the end of 2024. Among 1,132 P&C groups and entities with available data, 616 held no unaffiliated public equity investments, and 301 had exposure below 10% of their admitted assets.
An analysis of the top 25 publicly traded common stocks held by P&C insurers (excluding Berkshire) revealed that most positions had declined in value through the beginning of April. Still, exposure to stocks with the steepest recent losses was limited.
While short-term volatility may not significantly impact large insurers with diversified portfolios, some smaller companies remain more exposed due to concentrated equity holdings.
Despite market fluctuations, most insurers continued to report unrealized gains as of December 31, 2024. Excluding Berkshire, the industry’s aggregate carrying value of common stocks exceeded cost by $125.57 billion, up from $114.09 billion a year earlier. Among firms holding such equities, 85.6% recorded positions above acquisition cost.
The industry also posted record realized capital gains from unaffiliated equities, totaling $106.05 billion overall and $11.82 billion excluding Berkshire. These gains could allow insurers to pursue new investment opportunities following recent market corrections, although many firms may have already redeployed capital by this point in the year.
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