KBRA releases research examining the impact of secondary perils and the evolving reinsurance market for the U.S. property and casualty (P&C) insurance sector. Historically, major hurricanes have been the costliest weather events on both an insured and economic loss basis. However, secondary perils such as severe convective storms (SCS) generated significant insured losses in each of the last three years—and wildfires, most notably the Palisades and Eaton fires in California, have recently caused outsized losses relative to prior historical assumptions. These events significantly impacted insurer profitability and resulted in material underwriting changes, including rate increases and larger deductibles. For catastrophe-exposed writers, KBRA will continue to focus on underwriting results, reserves, and overall capital positions.

Key Takeaways

• Markets With Exposure to Severe Weather—Particularly Florida—Have Seen a Dramatic Change in the Insurer/Reinsurer Dynamic: Following the soft reinsurance market that transpired in the 2010s, reinsurers have significantly raised prices, tightened terms and conditions, and refined their risk appetite, including reduced use of aggregate reinsurance. This has resulted in primary insurers retaining more weather-related losses on a net basis. In response, larger insurers are either partially or fully withdrawing from high-risk areas and re-underwriting their portfolios or reducing coverage through higher deductibles.
• Risk Profiles Continue to Evolve: The population of Florida and other Southeastern states continues to increase, creating additional exposure to hurricane losses. A significant number of homes are expected to be built over the next five years in Florida and other rapidly growing regions. Longer fire seasons and drier conditions have amplified wildfire risk in areas vulnerable to this peril. In addition, impacts from SCS events are expanding beyond the traditional Midwest and Texas regions.
• Enhanced Third-Party Modeling for SCS: Both traditional and emerging catastrophe-modeling firms have enhanced their secondary-peril modeling capabilities and incorporated recent loss events into their datasets. Nonetheless, secondary-peril modeling continues to face challenges relative to forecasting hurricane losses. Following the California wildfires in January 2025, the state of California has now accepted the use of third-party modeling in rate filings—a change that will further reinforce the focus on and investment in the next generation of modeling tools.
• Alternative Sources of Risk Transfer: Insurers have historically managed weather-related losses through indemnity-based reinsurance programs with traditional reinsurance capital. However, alternative capital management solutions have continued to expand, including parametric coverage and nontraditional reinsurance capacity such as insurance-linked securities (ILS).

Current KBRA ratings reflect an expectation of moderate weather-related loss activity. Isolated downgrades may occur for insurers that experience outsized losses relative to capital. However, absent a particularly severe event, most insurers should be able to absorb storm-related losses through earnings or surplus without significantly impairing overall claims-paying ability. If weather events during the current year remain manageable, insurers may experience a second consecutive year of strong underwriting results, further strengthening capital and potentially generating favorable rating momentum.

Click here to view the report.

Recent Publications

• Keeping a Watchful Eye on Insurers Amid Busy Hurricane Forecasts
• Tariffs and Market Volatility: Potential Impacts on Insurance Sector
• California Insurance Market Faces Pressure After Los Angeles Wildfires

About KBRA

KBRA, one of the major credit rating agencies, is registered in the U.S., EU, and the UK. KBRA is recognized as a Qualified Rating Agency in Taiwan, and is also a Designated Rating Organization for structured finance ratings in Canada. As a full-service credit rating agency, investors can use KBRA ratings for regulatory capital purposes in multiple jurisdictions.

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