US Property-Casualty Insurers Posted Record Investment Income in 2024

US property-casualty insurance companies reported record investment income of $89 billion in 2024, a 20 percent year-over-year increase boosted by the higher interest rate environment, according to AM Best.

In a new Best's Special Report, Investment Income Reached Record Heights for P/C Insurers in 2024, the rating agency said that the increase in property-casualty insurers' investment income was driven by high returns on bonds and cash and short-term investments.

Best noted that after more than a decade of persistently low interest rates, the US Federal Reserve raised rates by 425 basis points between 2022 and 2024, causing bond prices to fall below their carried values. But the overall impact of those falling bond prices on property-casualty insurers' investment income was limited by most of those companies' well-matched and shorter duration portfolios, Best said.

As interest rates rose, insurers' returns increased due to reinvestment into higher-yielding securities with a significant positive impact on net investment income, according to the rating agency.

"As weather and catastrophe events increase and drive losses higher for some property-casualty insurers, investment income has become even more important to make up for poor underwriting results," Kaitlin Piasecki, industry research analyst, Industry Research and Analytics, AM Best, said in a statement.

With US property-casualty insurers reinvesting new money into higher-yielding assets, the segment's gross investment yield rose by 40 basis points to 3.66 percent in 2024, Best said. Bonds remain property-casualty insurers' largest asset class, and the portfolio yield on those bonds reached 4.1 percent in 2024, the highest level in more than a decade.

US property-casualty insurers' overall portfolio allocations have fluctuated in recent years due to equity market volatility and increased cash and short-term investments, Best said, though segment-wide trends are generally driven by larger players. The rating agency noted that Berkshire Hathaway accounted for nearly 40 percent of the segment's invested assets in 2024.

"There has been a slight increase in private securities over the last decade," Jason Hopper, associate director, Industry Research and Analytics at AM Best, said in the statement. "Property-casualty insurers also continue to favor and find value in residential mortgage-backed securities over commercial mortgage-backed securities."