In 2025, geopolitical dynamics, economic shifts, and technological advancements are influencing risks and opportunities for insurers and brokers worldwide. As we navigate an ever-evolving insurance landscape, this report provides a concise overview of key trends and developments shaping the global insurance market today.
The UK and Global Economy
- UK inflation rose to 3% in January 2025, up from 2.5% in December 2024, marking its highest level in ten months. According to The Guardian, this unexpected increase was driven by rising costs for food, transport, and private education following VAT policy changes. The inflation surge complicates expectations for early interest rate cuts by the Bank of England. Economic pressures, including energy costs and rising household expenses, are expected to sustain inflationary trends, impacting both businesses and consumers in the months ahead.
- US inflation also rose to 3% in January 2025, marking its highest level in six months. According to BBC News, the increase was driven by higher costs for essentials like food, energy, car insurance, and transportation. Analysts now predict interest rates may remain elevated for longer.
- Globally, the IMF highlights a steady global growth projection of 3.3% for both 2025 and 2026, which remains below the historical average of 3.7% from 2000–2019. While the US has seen an upward revision in growth forecasts, other major economies face downward adjustments due to elevated policy uncertainty. Global inflation is expected to decline to 4.2% in 2025 and 3.5% in 2026, with advanced economies likely to reach inflation targets sooner than emerging markets.
Insurance Industry Developments
- The global insurance market began to soften in late 2024, according to a range of industry observers, reports Insurance Business, and this has continued in early 2025. This shift follows several years of hard market conditions characterised by rising premiums, stricter underwriting, and capacity constraints. The insurance industry’s annual renewals for January 1st, 2025 provided fresh evidence, with the latest data highlighting a notable decline in property catastrophe reinsurance rates – the first since the bottom of the previous soft market in 2017. This may lead to lower premiums and increased market capacity – see our recent blog article.
- The cyber insurance market is projected to grow steadily in 2025, with global premiums expected to reach $16.6 billion, an 8% increase from 2024, according to Swiss Re. While the rapid double-digit growth seen in previous years has slowed, the market remains far from saturated.
- UK insurance regulator the Prudential Regulation Authority (PRA) has released its 2025 Climate Change Adaptation Report, highlighting the increasing physical and transition risks posed by climate change to insurers and financial institutions. The report outlines the PRA’s enhanced supervisory expectations, urging firms to strategically address climate risks through better identification, measurement, and management practices, improving the industry’s readiness for a net-zero transition.
- Meanwhile, the other UK insurance industry regulator, the Financial Conduct Authority (FCA), reports that key issues impacting climate change adaptation of insurers include data and modelling, barriers to insurance underwriting for climate risks, and allocating capital to adaptation measures.
Underwriting Performance
- In early 2025, Lloyd’s of London reported strong preliminary results for 2024, showcasing growth and resilience in a challenging market. Gross written premiums increased by 6.5% to £55.5 billion, driven by an 8.5% rise in property and reinsurance segments. The combined ratio, a key measure of underwriting profitability, stood at 86.9%, up from 84.0% in 2023, reflecting major claims in the second half of the year. Excluding large losses, the underlying combined ratio improved to 79.1%.
- The attritional loss ratio also improved to 47.1%, highlighting disciplined underwriting, while the expense ratio remained steady at 34.4%. Lloyd’s also addressed the California wildfires, estimating a net loss to syndicates of approximately $2.3 billion, though this is not expected to impact capital significantly.
Tech, Cyber and AI Developments
- February 2025 saw the biggest ever ‘cyber heist’ – and probably the largest single theft of all time, according to Reuters. Dubai-based cryptocurrency exchange Bybit suffered a massive security breach, resulting in the theft of digital tokens valued at around USD $1.5 billion. The North Korean state-sponsored Lazarus Group is suspected to be behind this attack.
- The growing integration of AI in the insurance sector is being met with increasing regulatory complexities in 2025, according to law firm Norton Rose Fulbright. The UK’s Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) revealed that 75% of insurers already use AI, with another 10% planning adoption within three years. Key developments include the implementation of the EU AI Act from February 2025, alongside various national regulations, presenting challenges for compliance in a heavily regulated industry.
Reinsurance Market
- The global reinsurance market in 2025 is projected to maintain stability, supported by strong operating profits, robust capitalisation, and favourable pricing trends, according to S&P research reported in Insurance Business. Reinsurers are expected to earn their cost of capital, driven by disciplined underwriting and high investment income from elevated bond yields. While property catastrophe reinsurance pricing has softened due to increased capital availability, it remains at favourable levels.
- Reinsurance challenges persist, including elevated insured losses from natural catastrophes, economic inflation, and geopolitical uncertainties. The market also sees growing demand for short-tail lines and alternative capital sources, such as catastrophe bonds, which continue to expand capacity. Despite these pressures, reinsurers enter 2025 with strong capital positions, enabling resilience against potential financial stresses.
Natural Catastrophes
- The highest-profile natural catastrophe of 2025 so far has been January’s California wildfires, which caused extensive damage, with insured losses estimated at around $30 billion and total economic impact reaching $250 billion, according to Digital Insurance. These fires highlight the increasing strain on insurers operating in climate-volatile regions, as rising claims costs and policy non-renewals become more common. Regulatory and environmental challenges, coupled with escalating construction and housing costs, are expected to impact rebuilding efforts.
- In Australia, cyclone Alfred struck Queensland in March 2025. According to Artemis, early estimates suggest insured losses could surpass AUD 1 billion, given the scale of property, auto, and commercial claims.
Geopolitical Risks
- Ongoing conflicts in Ukraine and the Middle East, along with rising geopolitical tensions, are reshaping the landscape of conflict-related risks for businesses in 2025, according to Aon. Insurers are responding by reducing geopolitical insurance capacity, increasing premiums, or withdrawing coverage altogether, leaving companies with limited options for protection. The maritime sector is particularly affected, with shipping routes being rerouted to avoid high-risk areas like the Red Sea, leading to higher operational costs and supply chain disruptions.
- According to PwC, new steep international trade tariffs between the US and several other nations are expected to have significant implications for the insurance industry. These tariffs are likely to increase costs for auto parts, construction materials, and other goods, potentially driving up the severity of auto and homeowner claims.
Looking ahead…
As we progress through 2025, Costero Brokers remains committed to supporting our clients and partners in navigating their challenges. Our expertise and insights are here to help you make informed decisions and seize opportunities in a rapidly changing market.
For more detailed analysis and resources, visit our website or contact us.
Disclaimer:
This market report was developed for reference only, and any prospective statements about possible future events or performance are based on developing factors regarding economic and business activity relevant to financial and insurance markets. Such prospective statements involve risk as actual results may differ materially from those expressed or implied due to future changes in relevant factors. We are not responsible for the accuracy of the third-party information cited herein and undertake no obligation to update any such data or prospective statements, nor do we in any way intend to provide legal, financial, or insurance advice regarding any existing or future litigation or other matter discussed or projected herein. Please seek the advice of your own professional advisors or counsel regarding your specific circumstances.
