As insured catastrophe losses rise, potentially increasing rates and reducing homeowner protection, according to S&P.
Insured catastrophe losses in the US have averaged over $40 bn annually in the past seven years, compared to $22 bn annually from 2010-2015.
This increase stems mainly from more frequent hurricanes, wildfires, and severe storms. Consequently, insurers have raised rates and adjusted underwriting practices to limit exposure to these events, potentially leading to higher premiums and reduced coverage for homeowners.
There is no doubt that the first quarter of the U.S. insurance industry will be a costly one. The insurance industry is struggling to adapt to a new normal in which losses fueled by climate change are now regularly exceeding $100 bn a year.
Insured losses from natural disasters hit about $120 bn in 2022, most of which was weather related, according to data compiled by Munich Re.
P&C insurers face several key risks
Extreme weather volatility remains a very high risk with no expected change.
Regulatory hurdles affecting personal line insurers’ rate adequacy are elevated but improving. Higher-for-longer interest rates present a moderate risk with an improving outlook.
Heightened cyberattacks pose a high risk with no anticipated change. Persistent inflationary pressures create reserve uncertainty and more expensive claims.

Accelerated technology transformation requires new regulatory and insurance approaches. The hard reinsurance market, impacting primary insurers’ risk transfer, is improving.
Geopolitical tension and challenges in the commercial real estate market remain moderate to elevated risks.
Rising investments in private credit and illiquid assets lead to liquidity concerns
These factors suggest a challenging landscape for property and casualty insurers, requiring ongoing adjustments.
In the past 18 months, reinsurers have reduced coverage for lower layers of natural catastrophe protection. Primary insurers now retain more risk and pay more for coverage, especially in personal lines exposed to property risk.
The pullback contributes to a negative outlook for the global P&C insurance sector, with weakening balance sheets and deteriorating underwriting margins in personal lines.
Despite these challenges, P&C insurers can adjust their strategies as most property policies renew annually.
While regulation and geographic concentration may slow this adjustment, the sector is expected to maintain high credit quality, with a median rating of ‘A+’.
Insurers are likely to charge higher rates for homeowners’ policies and reduce coverage in areas prone to natural catastrophes, especially where regulatory limits prevent rate increases.
145 insurer groups had gross direct premiums written in this category of more than USD 1 bn.
Growth is occurring because of several factors including a buoyant commercial specialty market (particularly in North America), rising premiums brought on by the increasing incidence of severe weather events (e.g. insurance for agricultural enterprises) and, of course, inflation.