In a year when artificial intelligence dominated investment narratives and technology stocks captured most of the attention, the insurance sector delivered a performance that surprised even its most ardent supporters. The industry gained 29.6% in 2025, outperforming both the broader financial sector and, by some measures, the S&P 500 itself.

The Standout Performers

Leading the charge was Heritage Insurance Holdings, which posted a remarkable 125% gain for the year. The Florida-focused property insurer benefited from improved pricing conditions and better-than-expected catastrophe results despite the active hurricane season.

Other notable performers included:

  • ProAssurance Corporation (PRA): Shares rallied 50% as the professional liability insurer capitalized on hardening rates in medical malpractice markets
  • Lincoln National (LNC): The life insurer gained 40% amid improving fundamentals in the annuity business
  • Kemper Corporation (KMPR): Shares rose 36% as the specialty insurer's turnaround gained momentum
  • W.R. Berkley (WRB): The property and casualty giant posted a 30% gain, extending its multi-year outperformance streak

How Insurance Outperformed in a Catastrophe-Heavy Year

The sector's performance is particularly impressive given the challenging environment. According to the Swiss Re Institute, insured losses from natural catastrophe events reached $100 billion in the first half of 2025 alone—the second-highest first-half total on record. Severe convective storms contributed $31 billion of those losses.

Yet insurance stocks absorbed these losses and continued climbing. The explanation lies in the industry's pricing power: after years of rate increases, insurers are now generating underwriting profits even in active catastrophe years.

"Despite an active catastrophe environment and rate cuts in some commercial lines, the industry has outperformed, banking on better pricing, exposure growth, and accelerated digitalization."

— Industry analysis

The Pricing Cycle Tells the Story

Global commercial insurance rates declined 4% in the second quarter of 2025, according to the Marsh Global Insurance Market Index. This marked the fourth consecutive decrease following seven years of increases. However, rates remain well above historical averages, supporting profitability even as the cycle turns.

For property and casualty insurers specifically, the accumulated rate increases since 2018 have created a cushion that allows them to maintain strong margins even as competition returns to certain market segments.

Technology Investment Pays Off

A less visible but equally important driver of insurance stock performance has been technology investment. Leading insurers have invested heavily in:

  • AI-powered underwriting: More accurate risk assessment leading to better loss ratios
  • Claims automation: Faster processing reducing administrative costs
  • Digital distribution: Lower acquisition costs and improved customer retention
  • Fraud detection: Advanced analytics reducing losses from fraudulent claims

These investments are translating into measurable improvements in combined ratios—the key profitability metric for insurers—and investors are rewarding companies that demonstrate operational excellence.

Health Insurance: The Laggard Subsector

Not all insurance stocks participated in the rally. Health insurance companies underperformed significantly in 2025 as uncertainty around Medicare Advantage reimbursement rates and rising medical costs weighed on the subsector.

This divergence created opportunities for sector rotation, with investors shifting from health insurers to property and casualty names as the year progressed.

Looking Ahead to 2026

The Swiss Re Institute expects global insurance premiums to rise 3% in 2026, supporting continued revenue growth for the industry. However, the rate of stock price appreciation may moderate as the easy gains from the hard market cycle have largely been captured.

Key factors to watch include:

  • Catastrophe losses: An active hurricane season or major earthquake could pressure results
  • Interest rates: Insurers benefit from higher rates on their investment portfolios
  • Competitive dynamics: New capital entering the market could accelerate rate declines
  • M&A activity: Consolidation could provide catalysts for individual stocks

Investment Takeaways

Insurance stocks offer characteristics that are increasingly attractive in the current environment: dividend yields that often exceed the market average, exposure to rising interest rates, and valuations that remain reasonable relative to historical norms.

For investors seeking diversification beyond technology, the sector provides a counterweight to AI-driven momentum trades. The fundamentals are sound, the pricing environment remains favorable, and the leading companies have demonstrated they can generate strong returns even in challenging years.

The 2025 performance may not repeat exactly, but the factors that drove outperformance—pricing power, operational improvement, and investment income—remain intact heading into the new year.