U.S. Insurance Sector Resilience During Government Shutdowns: A Defensive Investment Play

The U.S. insurance sector has long been regarded as a defensive asset class, offering stability in turbulent economic environments. Recent government shutdowns, including the 35-day 2018-2019 event and the partial 2025 closure, have tested this resilience. While shutdowns introduce uncertainty, historical data and sector fundamentals suggest that insurers remain well-positioned to weather short-term disruptions, making them compelling candidates for defensive stock positioning.

Defensive Positioning: A Historical Perspective

Government shutdowns typically trigger market volatility, with the S&P 500 averaging flat returns over the past five closures, according to a YCharts report. However, defensive sectors like healthcare and utilities have historically outperformed, while financials-including insurance-have shown mixed results. During the 2018-2019 shutdown, the S&P 500 fell 10% initially but rebounded by 10.3% post-resolution, as noted in a Yahoo Finance analysis. The insurance sector, though part of the volatile financials, demonstrated relative stability. For instance, Travelers Companies Inc. reported a 28% year-over-year increase in net income for Q4 2024, achieving a consolidated combined ratio of 83.2% despite broader economic headwinds in a Travelers press release. This underscores insurers' ability to maintain underwriting discipline even amid macroeconomic turbulence.

The 2025 shutdown further illustrates this trend. Despite a 0.34% initial gain in the S&P 500 and a modest rise in the VIX volatility index, the insurance sector avoided significant declines. AM Best observed this dynamic in an AM Best commentary, noting that insurers' reliance on long-term liabilities and diversified investment portfolios mitigates short-term market shocks. For example, the National Flood Insurance Program (NFIP) disruptions during shutdowns, while concerning for property insurers, have historically been temporary, with policy issuance resuming post-resolution according to an Insurance Journal report.

Earnings Stability: Sector Fundamentals

The insurance sector's resilience stems from robust underwriting practices and strategic investment allocations. In Q1 2025, non-life insurers achieved a $9.3 billion underwriting gain, a stark improvement from the $8.5 billion loss in Q1 2024, per the Deloitte outlook. This was driven by a 7.4% net premium growth and a 2.2% reduction in incurred losses, reflecting disciplined rate increases and cost management.

Investment portfolios further bolster stability. Insurers have increasingly shifted toward alternative assets-such as private credit and structured products-to capitalize on historically tight public credit spreads, according to a PineBridge outlook. For instance, life insurers saw a 9.6% rise in net investment income in 2023, while property and casualty (P&C) firms benefited from higher interest rates in an S&P Global report. These strategies insulate insurers from the immediate impacts of shutdown-related market volatility.

Quantifying Resilience: A Data-Driven Approach

While direct earnings data for shutdown periods is sparse, broader market trends provide insight. During the 2018-2019 shutdown, the S&P 500's 12-month post-resolution rebound averaged 18.9%, according to a Northern Trust analysis. Insurance companies, though not immune to short-term uncertainty, typically recover alongside the broader market. For example, Progressive Corporation's Q4 2018 net income fell 54% year-over-year, but this was attributed to catastrophe losses (e.g., wildfires, hurricanes) rather than shutdown-specific factors in a Progressive release.

Conclusion: A Strategic Investment Case

Government shutdowns, while disruptive, rarely inflict lasting damage on the insurance sector. Defensive positioning, coupled with strong underwriting fundamentals and diversified investment strategies, ensures earnings stability. Investors seeking resilience in uncertain times should consider insurers with robust capital structures and a history of navigating macroeconomic volatility. As AM Best notes in an InsuranceNewsNet commentary, the sector's ability to adapt to prolonged shutdowns-should they occur-will depend on duration and broader economic context. For now, the data supports a bullish outlook for insurance stocks as a defensive play.