Why Are Property & Casualty Carriers So Profitable?

Property and casualty carriers have made fortunes over the last two years. In fact, they have been profitable for 30 of 31 years. The exception was after the 9/11 attacks, when they threw in all the reserves they should have made in years prior. Specific carriers used that tragedy as camouflage for past reserving sins.

Over the last two years combined, profits totaled $317 billion. For context, according to the Congressional Budget Office, the entire U.S. Federal Government saw an increase of $317 billion in fiscal year 2025. This is approximately the ENTIRE economies of Peru, Greece, and Finland.

Even with all the nuclear verdicts (OMG! The sky is falling!), the catastrophes (global warming is ruining insurance!), and the plaintiffs’ bar successes (those attorneys are killing the industry!), etc., the carriers were still extremely profitable.

The only time in the last 30 years carriers have run into trouble is when they have made bad investments. Losses are virtually never a problem for the industry overall. In some states, the plaintiffs’ bar clearly has significant control. And in some states, regulators are asleep at the wheel. In other places, hurricanes definitely have an affinity. But overall, claims are never an issue. There’s a lot to be said for spreading risk–something more than one carrier strategist has forgotten.

Carriers lose money when they make bad investments, and when they make bad investments, hard markets often follow. The most recent hard market was largely caused by an investment loss of around $90 billion in 2022. (Compared with a recent analysis showing that nuclear verdicts might cause a loss of $5 billion per year, peanuts!) The total loss to surplus was around $70 billion. A shortage of surplus causes hard markets, not a lack of profits. There isn’t a lack of profits anyway.

Good Luck?

Why are carriers so incredibly profitable that, collectively, they could buy countries? Luck has a lot to do with it. Last year’s profits were high partially due to luck. Any carrier that did not make a fortune in 2025 should probably replace their entire C-suite because making money last year was like taking candy from a baby. Pretty easy. It was the best underwriting year since 2006, and 2006 was an anomaly affected by the Credit Crisis.

Another reason, at least nominally, is that carriers have become better underwriters. The chart below clearly shows a downward trend in combined ratios.

But a combined ratio has two components, so there are two ways to improve it. The numerator consists of claims and expenses. The denominator consists of premiums.

The first option is to decrease claims and/or expenses. Carriers have done a remarkable job of reducing expenses over the last 10 years, which has contributed to the downward trend. Losses can be reduced by better underwriting or by insuring less, especially if a commensurate rate decrease does not occur. And carriers are insuring less property. The huge increase in property deductibles demonstrates this fact.

The other way to decrease the combined ratio is to increase rates beyond inflation and exposure growth. As noted, carriers are successfully reducing expenses, so their expenses are not driving the need to increase rates. Net written premium (NWP) growth exceeded consumer inflation and claims cost inflation almost every year over the last 30 years (the credit crisis was the major exception). NWP has also increased faster than U.S. GDP almost every year (the credit crisis, again, was the major exception), and GDP is a reasonable proxy for exposure growth. If NWP is consistently increasing faster than inflation, claims costs, and exposure growth, then it is fair to say rates are excessively high.

In commercial lines, these points understate the overcharging. This is because approximately 90% of corporate property is now intangible, and insurance companies are loath to insure intangible property. This means almost all of the GDP figures specific to commercial property growth are in property that insurers do not insure. If intangible property was subtracted from GDP, the delta between GDP growth and NWP growth would be greater, but that would be the fairer measure.

ART

Smart commercial accounts practicing quality risk management understand they are being materially overcharged. This is why the alternative risk transfer options are growing so quickly.

A recent AM Best report estimated savings of approximately 40% by moving to an alternative risk transfer option. Other reports already suggest that over half of all commercial premiums are in alternative risk models, meaning what is left is skewing adverse selection.

I don’t know if most carriers understand why they want so much small commercial. The U.S. GDP needs to double to satisfy the appetite for small commercial carriers want to write. An important reason for writing small commercial is these accounts are less able to take advantage of alternative risk transfer mechanisms. The good small commercial accounts remain, whereas the good middle market and large commercial accounts can move. That is not to say all these accounts should move, but they can. Many have, and more will, because they see no reason to overpay by 40%.

Carriers jacked rates so high that they overshot in this last hard market. They somehow managed to further damage their reputation and give the plaintiffs’ bar more ammunition.

If you are an agent, get educated on these alternatives. Don’t trust everything you hear, because many charlatans exist, preying on the desperation created by this market. Develop these options because some are far more valuable than 10 additional admitted markets.

If you are a carrier, sharpen your actuarial minds and determine whether you really need to charge so much. The financials suggest you do not. Then figure out how to build a brand that positions you above your competitors who continue to overcharge.

Topics Carriers Profit Loss Property Property Casualty Casualty