The US property and casualty (P&C) insurance industry generated a record $89 billion in investment income in 2024, marking a 20% year-over-year increase, according to AM Best.
The firm reported that the growth was fuelled by higher interest rates, stronger returns from bonds, and increased contributions from cash and short-term holdings.
AM Best noted that the Federal Reserve’s 425 basis point rate hikes between 2022 and 2024 reversed more than a decade of historically low interest rates.
While these moves drove bond prices below carried values, the impact was limited because most P&C insurers maintained shorter-duration and well-matched portfolios.
Reinvestment into higher-yielding securities significantly boosted returns, lifting the industry’s gross yield to 3.66% in 2024. Bond portfolios remained the largest component of assets and produced a yield of 4.1%, the strongest level in over ten years.
According to AM Best, shifts in portfolio allocations were also notable. Common and preferred stock holdings dropped by nearly four percentage points, largely due to a major divestment by National Indemnity Company, a Berkshire Hathaway subsidiary.
That single transaction accounted for about 80% of the industry’s net capital gains for the year. Meanwhile, cash and short-term investments rose by three percentage points, partly because proceeds from the stock sales were not fully redeployed.
US equity markets, which ended 2024 near record highs, further supported insurers’ balance sheets. Berkshire Hathaway alone represented almost 40% of the sector’s invested assets, underscoring its outsized influence on industry trends.
AM Best reported continued improvement in credit quality, with NAIC-1 bonds making up 80% of holdings. Below-investment-grade bonds held steady at just over 4%. Residential mortgage-backed securities gained more weight in portfolios, reaching 11.4% of allocations, while commercial mortgage-backed securities stood at 5.0%. U.S. corporate bonds also expanded to nearly half of total bond portfolios, extending a decade-long rise.
On the equity side, AM Best found that total stock holdings fell by roughly $49 billion in 2024, reversing much of the prior year’s $70 billion increase. Dividend yields from stocks slipped to 2.0%, continuing a downward pattern since 2022. Stocks as a share of policyholders’ surplus declined to 54.7%, the lowest level since before 2019.
AM Best emphasised that with $2.6 trillion in invested assets at year-end 2024, property/casualty insurers remain focused on how best to position their portfolios amid elevated interest rates and market uncertainty.
As rising catastrophe losses and other challenges continue to weigh on underwriting results, the firm stressed that investment income has become an increasingly important source of profitability for the industry.
“As weather and catastrophe events increase and drive losses higher for some P&C insurers, investment income has become even more important to make up for poor underwriting results,” said Kaitlin Piasecki, Industry Research Analyst, Industry Research and Analytics, AM Best.
“There has been a slight increase in private securities over the last decade,” added Jason Hopper, Associate Director, Industry Research and Analytics. “P&C insurers also continue to favour and find value in residential mortgage-backed securities over commercial mortgage-backed securities, with mortgage-backed securities accounting for 11% of the industry’s allocations, compared with 5% for commercial mortgage-backed securities.”
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