Catastrophes have become a consistent and significant factor in the property and casualty (P&C) insurance sector, according to a new P&C Forecast & Analysis report from Conning.
The report highlights that the frequency and severity of natural catastrophes, particularly secondary perils such as severe convective storms and wildfires, are continuing to reshape the industry landscape.
First-half catastrophe losses reached record levels, driven in part by the January Los Angeles fires. Despite these losses, the sector reported a better combined ratio compared to the same period last year.
The report projects that 2025 will mark the eighth year out of the past nine with above-normal catastrophe losses. Estimated losses for the first half of the year stand at $64 billion.
The frequency and intensity of wildfires in the United States have notably increased, with more than 28,000 wildfires burning over 1 million acres so far in 2025, surpassing the 10-year average. This trend has prompted insurers to reassess their underwriting strategies, resulting in higher premiums, reduced capacity, or even withdrawal from high-risk areas.
Property insurance renewals during the first half of 2025 have reflected increased competition among carriers. Rate decreases between 5% and 30% have been reported, particularly for single-carrier programs and accounts with favorable risk profiles.
However, properties exposed to wildfires, older wood-frame habitational risks, and wind-exposed properties with aging roofs continue to face challenges in securing favorable terms or rate reductions.
Rising loss costs remain a challenge for insurers. Increased repair costs for autos and homes, attributed to supply chain disruptions, skilled labor shortages, and higher prices for repairs, are outpacing general inflation in several markets.
The report also points to social inflation – including the growth in jury verdicts, litigation financing, and settlement costs – as an additional source of pressure.
The U.S. economy is forecast to experience a “soft landing” from 2025 to 2027, with real GDP growth projected near 2%. Unemployment is expected to move toward 4.5%, and inflation is anticipated to ease toward the Federal Reserve’s 2% target. As inflation moderates and pricing pressures subside, premium growth is likely to shift from being primarily price-driven to exposure-driven.
Uncertainty remains a prominent theme for the industry, driven by the pace of proposed changes in tariffs, government spending, and geopolitical tensions. The report notes that this uncertainty presents challenges for insurers but may also increase demand for risk management solutions.
“Uncertainty in the operating environment creates a number of concerns for insurers but should also stimulate demand for risk management products,” the report notes.
Investment income continues to serve as a key source of support for the industry. Higher interest rates have resulted in stronger new money yields on insurers’ fixed-income portfolios, boosting net investment income after years of lower returns.
While interest rates are expected to decline gradually, they are likely to remain at levels that support investment income. The ability to reinvest maturing assets at favorable spreads is expected to play a critical role in supporting earnings and capital, even as yields respond to changes in monetary policy.
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