Aon’s Capital Poll: U.S. Insurers See Further Growth Opportunities in 2025

Aon’s Capital Poll: U.S. Insurers See Further Growth Opportunities in 2025
January 7, 2025 8 mins

Aon’s Capital Poll: U.S. Insurers See Further Growth Opportunities in 2025

U.S. Insurers See Further Growth Opportunities in 2025

Aon’s Fall 2024 Capital Poll explores U.S. insurers’ attitudes toward their current retentions, growth outlook and capital solutions companies plan to employ to meet their 2025 targets.

Key Takeaways
  1. Most insurers expect to exceed a growth rate of 5 percent in 2025.
  2. Respondents revealed an increased interest in structured solutions as a source of capital.
  3. A few personal lines-focused insurers consider retentions high relative to expected earnings, indicating potential capital constraints.

In response to the market challenges over recent years, insurers are adopting a growth-oriented mindset as many see positive rate momentum continuing into the new year. Investment return has been accretive to results and the re-underwriting of their portfolios that many insurers undertook over the last year and half is starting to pay off. 

With many insurers’ eyes set on growth in 2025, Aon’s Capital Advisory polled senior leaders representing commercial, personal, specialty, and reinsurance carriers for insight into how demands on capital are shifting. 

Opportunity for Growth

Results from Aon’s Fall 2024 Capital Poll indicated that most insurers view their current retentions as moderate or low compared to surplus. They also largely believe that stakeholders — such as rating agencies and regulators — are satisfied with their current levels of capital adequacy. Along with underwriting actions, investment returns were accretive to capital positions. Rating agency S&P recently revised the U.S. property and casualty sector’s outlook from negative to stable given the improved capital position. AM Best also moved to a stable outlook on U.S. personal lines in December, driven largely by improving conditions in the personal auto space. Much of the industry is expecting to deploy that capital in 2025, as most insurers anticipate exceeding the predicted industry growth rate. However, as management looks to future opportunities, some insurers did indicate a need to temper growth expectations given their current capital levels.

Catastrophe Retentions are Manageable Relative to Surplus, but Meaningful to Earnings

The last few years of reinsurance renewals resulted in increased retentions for most insurers on the primary side, impacting capital adequacy and earnings. However, with the return of strong investment results and aggressive underwriting actions, most insurers were able to stabilize their surplus levels. Overall, only 8 percent of survey respondents, mostly mutual insurers with a focus on personal lines, view their current catastrophe retention as “high” compared to surplus, reflecting retained catastrophe volatility, which has impacted surplus in recent years.

More broadly, 29 percent of respondents view catastrophe retention as “high” relative to expected earnings. These responses were also skewed toward mutual insurers, but interestingly spread across surplus size. The higher retentions have the  potential to introduce greater volatility in earnings for insurers on the primary side.

Exhibit 1: What is Your View of Your Catastrophe Reinsurance Program's Current Retention Relative to Surplus and to Next Year's Earnings?
Exhibit 1- What is your view of your catastrophe reinsurance..
Premium Growth Expected to Outpace Insurance Industry Growth

Many survey respondents foresee a favorable environment conducive to direct premium growth, with roughly 44 percent expecting to grow by a range of 6-10 percent and 26 percent expecting the strong growth of 11 percent or higher in 2025. Meanwhile, 23 percent predict a 2025 premium growth of 1-5 percent, and only 7 percent of respondents forecast their growth to be flat to down. Specialty insurers do not anticipate growth to decrease, likely due to positive momentum toward the E&S market.

Fifty percent of commercial insurers expect to grow 6-10 percent in 2025, and about 36 percent expect slower growth at 1-5 percent. Forty-one percent of personal lines insurers anticipate 6-10 percent growth and 25 percent expect rapid growth of more than 15 percent. Favorable growth outlooks in both lines are mainly attributed to anticipated rate increases. Initially, the commercial property market was predicted to soften, however, storm activity in the second half of 2024 may slow this trend. Personal lines rates continue to rise in reaction to retained catastrophe frequency losses driven by secondary perils and persistent inflation. Social inflation also continues to pressure reserves, encouraging continued pricing momentum. 

Exhibit 2: If 2025 Industry Growth is 5%, What is Your Expected Direct Premium Growth?
Exhibit 2- If 2025 industry growth is 5 percent.
Mixed Views on Capital Levels to Support Growth

There were mixed views around insurers’ capital levels and their impact on growth. Most respondents had sufficient or excess capital; however, about 22 percent admit they may need to slow growth to manage capital. Commercial insurers were less likely to have capital constraints, with roughly 36 percent reporting excess capital to fund new opportunities and about 41 percent indicating sufficient capital to fund existing initiatives. Personal insurers were less confident in their capital position to support growth opportunities. Nineteen percent of respondents reported being capital constrained, while 38 percent reported they had sufficient capital to support only current opportunities, and 38 percent indicated they currently had sufficient capital, but were tempering potential growth. However, some pressure felt by personal lines insurers is lessening, specifically for personal auto insurers as they reach a point of greater stability and pivot from targeting profitability to targeting growth. Insurers that could invest in organic growth, prioritized technology, which is a trend that will likely continue.

Exhibit 3: What is Your View on Capital Levels and Growth Outlook?
Exhibit 3- What is your view on capital levels and growth outlook

In our recent article, How Insurance Companies can Sustain Profitable Growth Through the Market Cycle, Aon’s Strategy and Technology Group (STG) addressed this issue by exploring where and how to deploy capital for growth opportunities.

Pressure on Capital Eases for Most Insurers

Nearly 80 percent of respondents said they were not receiving pressure from rating agencies or regulators to bolster their capital position. The unrealized losses that many insurers experienced in 2022 have now largely reversed. This, along with the series of underwriting actions — such as rate increases and various exposure management initiatives — resulted in strong earnings for much of the industry, alleviating pressure felt in the market during 2023. Twenty percent of respondents who experienced pressure from external stakeholders were mostly personal lines companies. Although personal lines — led by private passenger auto — have started to recover from 2022 and 2023 challenges, they continue to face headwinds, like the regulatory environments that challenges their rate adequacy. Many of these respondents also indicated that their retentions were high relative to next year’s earnings.

Exhibit 4: What is Your View on the Following Statement? My Company is Receiving Pressure From Rating Agencies or Regulators to Improve Capital Adequacy.
Exhibit 4-What is your view on the following statement
Rating Agency Industry Outlooks
 Segment  AM Best  S&P
 Personal Lines  Stable  Stable
 Commercial Lines  Stable  Stable
 Reinsurance  Positive  Stable
Increased Interest in Structured Solutions 

Respondents were asked about the forms of capital they are including in their 2025 capital management plans. The largest percentage of respondents (36 percent) answered that management was relying on retained earnings, equity and/or traditional reinsurance, i.e., the “none” response. However, compared to responses from Aon’s Fall 2023 Capital Poll, respondents increased their interest in structured reinsurance, which received the second largest percentage (22 percent). For insurers that are capital constrained, yet seeking growth, structured quota shares might be a possible solution. As social inflation continues to impact the results of insurers with significant liability exposure, they may turn to a Loss Portfolio Transfer (LPT) /Adverse Development Cover (ADC) to ease earnings volatility. Respondents also indicated strong interest (20 percent) to expand available capital through debt or surplus note issuances.

Exhibit 5: What Forms of Capital are Part of Your 2025 Capital Management Plans (Other Than Retained Earnings / Equity / Traditional Reinsurance)?
Exhibit 5: What forms of capital are part of your 2025 capital management plans (other than retained earnings / equity / traditional reinsurance)?
2025 U.S. Insurance Industry Outlook

Most insurers are anticipating robust growth in 2025. While some insurers continue to work through capital constraints, many are approaching 2025 with relative capital strength. Many respondents indicated an excess in capital, potentially welcoming a new wave of organic and inorganic growth.

Three Capital Strategies to Consider in a Growth Environment 

Solutions outside of traditional reinsurance can help insurance management respond to the pressures of internal and external stakeholders alike. 

  • Quota share can bridge capital needs and support growth opportunities by reducing leverage and net catastrophe retention in a cost effective manner
  • An ADC walls off reserve volatility, freeing up capital and mitigating earnings volatility
  • Diversifying capital by issuing surplus notes or private debt provides long term funding to fuel growth, whether organic or inorganic. It is a powerful balance sheet management tool to complement reinsurance and efficiently manage rating agency capital.
About Aon’s Capital Poll

In Fall 2024, Aon surveyed 70+ upper management respondents at various U.S. insurers. Respondents represented commercial, personal, specialty, and reinsurance carriers and were representative of surplus sizes ranging from less than $50M to greater than $2B.

Aon’s Thought Leaders
  • Clare Finnegan
    Director, United States
  • Anna Levine
    Senior Analyst, United States
  • Pat Matthews
    US Head of Capital Advisory, United States

General Disclaimer

This document is not intended to address any specific situation or to provide legal, regulatory, financial, or other advice. While care has been taken in the production of this document, Aon does not warrant, represent or guarantee the accuracy, adequacy, completeness or fitness for any purpose of the document or any part of it and can accept no liability for any loss incurred in any way by any person who may rely on it. Any recipient shall be responsible for the use to which it puts this document. This document has been compiled using information available to us up to its date of publication and is subject to any qualifications made in the document.

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