Credit: Rudzhan/Adobe Stock
Insurers might be moving into a new underwriting cycle that will make it harder to absorb volatility, according to new research from Howden Re.
The report analyzed 14 nationwide carriers over a 25-year period and found that average catastrophe loss loads have more than doubled since the early 2000s. Frequent mid-size events, especially severe convective storms, have been responsible for a large part of the increase.
Rate increases over the last several years, especially in property insurance, have helped carriers absorb the growing losses. Between 2017 and 2024 for example, property rates rose by about 160%, and the carriers analyzed saw combined ratios improve from an average of 96% to 93.4%.
But the market is starting to soften, with declining rates, more competition and increased capacity. The soft market could compress underwriting margins and make it harder to keep up with growing catastrophe losses, according to the report.
"The hard market helped absorb rising catastrophe losses, but it also concealed how much the underlying cost base has shifted," said Peter Evans, research director at Howden, in a statement. "The average catastrophe loss load has increased from 4.4% in the late 2010s to 5.4% in the 2020s, representing a meaningful shift in the baseline. As rates decline, the industry may have less room to absorb volatility than recent results suggest."
The report found that a soft market at recent catastrophe loss average could more than halve underwriting margins from around 6.6% to 3%.
It also found a widening gap between carrier performance. In the early 2000s, the delta between the lowest and highest catastrophe loss burden was 7.1 percentage points; between 2020 and 2025 it was 11.7 points.
Underwriting discipline, portfolio construction and reinsurance strategy are playing a larger role in performance outcomes. Competitive conditions at the Jan. 1 reinsurance renewals helped insurers achieve savings.
"Reassessing volatility protection is critical as the cycle turns," said Kyle Menendez, managing director at Howden Re, in a statement. "Catastrophe pressures have structurally increased as primary rates have softened. Carriers have a clear opportunity to strengthen reinsurance programs before severe losses test thinner margins. Those that move early in what remains a buyers' market can reduce earnings volatility and support disciplined growth."
Photo credit: Rudzhan/Adobe Stock
© Touchpoint Markets, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.