Table of Contents

• Quick take — short version for Curious Minds
• Outline
• 1) How we got here — a five-to-eight year journey
• 2) The national picture — premiums, loss ratios and inflation
• 3) Reinsurance — why it matters and why the recent softening is significant
• 4) California snapshot — what’s different and what’s encouraging
• 5) LA wildfires and the Fair Plan — system test and assessment
• 6) What “past peak pain” actually means — realistic expectations
• Final thoughts — stay curious, but be pragmatic

Quick take — short version for Curious Minds

Hey Curious Minds crew — hope you had a good holiday season. If you want the headline: after several brutal years of supply-shock inflation, wildfire shocks and hardened underwriting, the P&C market looks like it’s finally cresting the mountain top of peak pain. Rate increases and tighter underwriting pushed carriers back toward profitability in 2023–24. Reinsurance pricing at the January 2026 renewals are easing, Fair Plan growth is stabilizing in California, and a return toward more normal cyclical behavior feels plausible with less volatility and more capacity returning to the market. We are still a long ways off (couple years) from returning to stable Property market in California, but the COVID and post-COVID disruption is settling down and moving back towards whatever the “new normal” trend will be.

Outline

• How we got here: COVID, supply shocks and multi-year lag effects
• National picture: premiums, loss ratios and inflation
• Reinsurance: the domino that drives property pricing
• California specifics: Prop 103 totals, workers’ comp and market growth
• LA wildfires and the California Fair Plan: the assessment and what it means

1) How we got here — a five-to-eight year journey

COVID hits as a sudden black swan in 2020 and shuts down economies, supply chains seize up, and the cost of rebuilding — from plywood to parts to labor — spike. Insurers write policies based on one set of assumptions; then claim costs shoot up fast. Getting rate filings through regulators, into market, and fully earned (remember a 24-month earning cycle for many annual policies) takes time — hence the five-to-eight year window from shock to recovery.

2) The national picture — premiums, loss ratios and inflation

High-level observations from the national data:

• Loss ratios rose sharply after the supply-shock inflation period. At a trillion dollars of premium, even a few points of loss-ratio movement equals massive dollars.
• Rate actions in 2022–24 — especially 2023 and 2024 — pushed loss ratios back down. Nationally you can see movement from the mid-60s back toward the low 60s range.
• Premium volume is growing again; annualized industry premium approached ~1.2T through mid-2025 — growth that reflects a larger insured base and rising asset/liability exposure across the economy.

Visualizing the timing between inflation spikes and rate responses is key — the CPI jump during and after COVID drove replacement and repair costs far faster than rates could be adjusted. That creates a long lag before carriers can earn back profitability.

3) Reinsurance — why it matters and why the recent softening is significant

The primary insurers (State Farm, Travelers, Mercury, etc.) don’t keep all catastrophe risk on their balance sheets — they buy reinsurance. Reinsurance pricing and terms ripple straight down into primary-market capacity, underwriting appetite and ultimately, consumer premiums.

History shows reinsurance cycles tied to catastrophes: Katrina in 2005, a decade of easing, then the California wildfire shocks in 2017–18 that wiped out decades of underwriting profit and began a hardening cycle. 2022–23 saw reinsurance rates spike parabolically.

Good news: the January 1 reinsurance renewals (property catastrophe) showed a ~12% decline in the Guy Carpenter index — an early sign of market softening. That easing at the top of the stack helps primary carriers consider growth again and eases pressure on rates.

4) California snapshot — what’s different and what’s encouraging

California remains a unique and complex market. A few notes:

• Workers’ compensation has been healthy for years and continues to be a stabilizing, profitable line — even seeing modest rate firming in 2024 but still attractive to carriers.
• Under Prop 103 reporting, California P&C premiums climbed from roughly $81–82B in 2023 to about $92B in 2024 with a meaningful drop in the overall loss ratio (from ~72% to ~64%).
• That growth was painful for consumers but necessary to restore rate-to-risk balance. The critical thing to watch is 2025 numbers (and how 2025’s LA fire losses show up in the book). Expect some upward pressure on loss ratios when big-event losses settle through the data.

5) LA wildfires and the Fair Plan — system test and assessment

The LA wildfires were another major shock. Insured loss estimates are wide — early ranges (economic and insured) vary significantly — but for carriers and regulators this event tested solvency and the market backstop: the California Fair Plan.

Key points about the Fair Plan and recent developments:

• The Fair Plan is intended as a market of last resort, not first choice. During peak pain it had grown dramatically as admitted carriers withdrew from high-risk zip codes.
• After the LA fires the Fair Plan requested and received an assessment (historic in scale) to keep claims paid. The Fair Plan is not taxpayer-funded — member admitted carriers get assessed based on market share and, in turn, can recoup a percentage (up to certain limits) through policyholder surcharges over time.
• The encouraging sign is the Fair Plan metrics are beginning to flatten: new-business inflows slowed in late-2024, and several non-admitted and some admitted carriers (e.g., Mercury in distressed zip codes) are in the earliest stages of writing California property business using newer catastrophe modeling and sustainable insurance strategies. Some carriers will choose to use the new Sustainable Insurance Strategy frameworks in order to utilize the ability to incorporate new CAT Models and Reinsurance rates into the rating plans for CA Property rates, and other carriers will not. Each carrier has their own book exposure in California and how they utilize the various tools for their rates to address their risk exposure will vary by insurance company.

6) What “past peak pain” actually means — realistic expectations

Important clarifications:

• “Past peak pain” does not mean rates will drop back to pre-2019 levels. Rates are not going to head into that territory as carriers needed to restore rate adequacy to reflect the realities of loss trends.
• What we are seeing is likely a reduction in volatility, incremental return of capacity, and a reversion toward a more normal hard/soft cyclical market. Think 5–8% average annual rate moves over time, rather than 10%+ swings or parabolic spikes we saw in 2023 and 2024.
• Barring another black swan event or systemic loss trend inflation driven by other issues that hits suddenly, it appears risk and rates are broadly stabilizing. There are still many instances of large rate increases on renewals impacting insureds, but new rate increase requests by carriers are more in line with trend rate rather than the major rate increase requests and approvals we have seen in over the past few years. This indicates a more stable renewal rate environment in the back half of 2026 and into 2027.

Final thoughts — stay curious, but be pragmatic

We lived through a multi-year market correction driven by a unique set of shocks. The combination of rate filings, underwriting discipline and easing reinsurance costs suggests we’ve likely passed the worst of the acute pricing pain. That’s good news — but it’s not a return to the old normal overnight. Be cautious, favor mitigation and smart placement, and expect the market to move back into more familiar cycles over the coming years.

Thanks for sticking with this deep-dive. Stay curious! Peace.