The Equal Ventures Insurance Index
Q4 2024
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The Equal Ventures Insurance Index is a quarterly summary of price action and takeaways from the P&C insurance industry. We look at segments of relevant public equities to highlight key themes and trends underlying performance. This post summarizes performance of our indices in Q4 2024 and over 2024 more broadly. As always, our goal is to help support observers of the insurance industry in identifying key drivers and catalysts (and not to recommend any specific investments).
Looking back at 2024, it was a huge year for the insurance industry — each of our indices outperformed even a very strong broader equity market. The confluence of rate increases (which lag losses), moderating inflation, and strong macro resulted in lower combined ratios and higher profitability. Premium growth accelerated, ad spending came back after a lull during the harder market, M&A picked up, and multiples expanded. Q4 performance in particular was more of a mixed bag. For our legacy brokers/carriers, much of the performance was front-loaded in 2024: legacy stocks we track were on average flat in Q4, after having made big gains earlier in the year and facing rate deceleration. Insurtechs, though, continued to fly, on premium growth and improving unit economics — a trend that may well keep early stage insurance investors busy in 2025.
Q4 2024 Summary & Highlights:
In a reversal from last quarter, legacy carriers and brokers were on average up small or flat, as trends in rate growth caught up with high expectations. P/E and P/BV came in slightly vs. Q3, as fundamentals remained solid.
Insurtechs RIPPED as they continued to improve loss ratios and drive stronger operating efficiency. Insurtech carriers in our index were up >90% in Q4 alone.
Broker consolidation and M&A activity continued, with another massive broker acquisition in AJG for AssuredPartners.
Q4 capped an exciting year for the industry, during which insurers outperformed a strong market. Carriers/Brokers in our indices were up an average of ~30% over FY 2024, and insurtechs by triple digits.
2024 was a year of inflection for the insurance industry. After a spate of challenging years, we moved from a decidedly hard market to a softer one. Both legacy and digital carriers benefited from pricing power, margin expansion, and accelerating growth, as brokers benefited from rising premiums and strong macro. Almost across the board, combined ratios and premium growth are significantly stronger vs. a year ago.
Q4, though, may be the quarter where we began to transition to a more cautious point in the cycle (for the legacy companies we look at, at least). Industry profitability expectations remain broadly healthy going into 2025, with ROE projected at ~10% in 2025-2026. But after the bumper results of the past 18 months, rate growth is set to moderate. SwissRe recently projected non-life North America rate growth for 2025-2026 of roughly 2%, lower than the increases throughout the hard market form 2019-2023, and less than half of the ~5.2% growth realized in 2024 (chart below).
This is expected: rates cannot (and should not) go up forever. Stronger margins encourage growth at existing carriers as well as the emergence of new MGAs, and skyrocketing premiums plateau as underwriting ratios normalize and competition increases. Carriers are already reporting increasing competition, particularly in property segments and often from MGUs and new entrants. Ultimately, the pace and magnitude of pricing deceleration will be a big determinant of how the industry performs in early 2025.
Jan 1 reinsurance renewals last week showcase rate deceleration and the ongoing market softening in action. Following a second consecutive year of strong reinsurance returns, Guy Carp notes that total reinsurance capacity has increased by 10% over the past two years. Brokers reported increased supply of reinsurance for natural-catastrophe exposed properties and rates that fell by high single-digits, in a category where there was virtually no affordable capacity just 2-3 years ago. Despite 2024 being an outsized year for natural-cat insured losses, the share of those losses that are reinsured is lower than before 2023, demonstrating how pricing discipline and higher retentions have led to greater profits at reinsurers. This does not mean property capacity is now easy or cheap: single-digit rate decreases on hugely elevated baseline prices means that prices remain directionally very high (and moreover, rates continued to surge higher in specific regions that were loss-impacted). But the clear trend toward moderating rates shows pricing power is becoming less robust.
Consequently, reinsurers in our index traded off in Q4, as the signs of increased capacity and reduced pricing power became more evident. Broader P&C carriers in our index were up by low single digits on average, a far cry from their performance in Q3.
Rates are by no means collapsing, and are unlikely to anytime soon. There are specific pockets of commercial casualty risks where rate increases are actually accelerating, given losses from social inflation and nuclear verdicts, where carriers are struggling with growing liabilities and losses. And “decelerating” E&S premium growth continues to grow by double digits as those markets take share. But generally we appear to be transitioning to a period of less pricing power and more competition, and Q4 legacy index results reflect this.
Whereas the legacy carriers had muted Q4 performance, the same cannot be said for insurtechs, which closed out a blockbuster 2024 with a massive Q4.
The tech-enabled distributors and marketing companies were up a median of 25% on the year, buoyed by accelerating growth spend, new business, and strong pricing. GSHD, the largest company we track in that segment, more than doubled in 2024. And while I feel like a broken record at this point, it’s the P&C insurtech carriers that really shined, in Q4 and over FY 2024. This group was up an almost unbelievable 90% on average in Q4, and at the median nearly tripled over the year.
In their October earnings report, LMND (+122% in Q4) increased PIF by 24% y/y as premiums per customer grew by 6%. Their 73% loss ratio in the quarter was 11 points better y/y and 4 points better than the trailing 12 month average. OpEx was up, but virtually all of the increase reflected “growth spend," as the company "tripled ad spend” y/y — paired with more policies in force, flat opex (ex marketing) reflects improving operational efficiency.
It was a similar (if not even better) story at ROOT (+92% in Q4, and almost 600% on the year), which reached profitability for the first time. Importantly, the company also refinanced debt terms, achieving 300bps improvement that reflects improved operational performance and paves the way for more, and more profitable, growth. Similar to LMND, ROOT’s S&M spend in its Q3 results was 2.6x the year ago quarter, and 4.3x over the nine months through 9/30. Interestingly, last quarter we wrote about how they got dinged for too-slow sequential growth in PIF; it actually slowed further this quarter, but it no longer mattered: the company hit the major milestones that the Street was looking for, and the stock flew. Insurtech is so back.
Industry fundraising and M&A kept pace in Q4 as well — which makes sense given incredible price action in the sector over 2024. Insurtech VC fundraising was up marginally y/y (through Q3), supported by larger deals and growing enthusiasm for vertical AI, but remains well off its 2022 levels. However, PE-backed investments into insurance underwriters and brokers increased substantially in the first 9 months of 2024, and was on pace to surpass 2020 levels.
Brokerage M&A held for corporates in Q4 as well, where we capped off a big year of consolidation. In December, Gallagher announced its acquisition of AssuredPartners, a leading PE-owned broker, for $13.5B, at ~14x EBITDA. AssuredPartners is the 11th largest US broker with $11B in 2023 premium and $2.9B revenue, and was itself growing in large part from acquisitions. We closed off Q3 with Marsh for McGriff and started 2024 on the heels of Aon for NFP last December — so with AJG for AssuredPartners, we have now seen each of the top 3 brokers acquire a massive asset from PE in the space of a year, as scale and breadth of services becomes increasingly important. With the industry remaining hot and as PE dollars flow into the industry, consolidation is a trend that may continue into 2025.
2024 was a standout year for insurance — carrier profitability improved, ad spend bounced back after a long lull, and broker consolidation accelerated. Insurtechs, in the gutter 18 months ago, improved their combined ratios and stepped on the gas for growth to such an extent that their dizzying 3-figure 2024 price increases look like typos. The industry remains healthy, but there are also signs that rate growth is stalling as comps/expectations get more challenging compared to 12 months ago. We’re excited to see what the coming quarter and year have in store!