New report: Rising catastrophe losses in a softening market are reducing insurers’ ability to absorb volatility
- Catastrophe losses have structurally reset to a higher baseline over the past 25 years
- Recent hard market pricing has masked how far underlying costs have shifted
- The performance gap between carriers is widening
- As rates soften, underwriting margins could compress
Howden Re, the global reinsurance, capital markets, and strategic advisory arm of Howden Group, today releases new research indicating that US P&C insurers may be entering the next phase of the underwriting cycle with less room to absorb volatility.
The report’s analysis of 14 nationwide carriers over a 25-year period finds that average catastrophe loss loads have more than doubled since the early 2000s and warns that a reversion to soft-market pricing could compress underwriting margins, materially reducing the industry’s buffer against heightened catastrophe volatility, including elevated severe convective storm (SCS) activity or a major hurricane.
Over the past several years, insurers have benefited from sharp rate increases, particularly in property insurance. Between 2017 and the 2024 peak, property rates rose by approximately 160%, helping to absorb growing catastrophe losses and support strong reported results. The market is now shifting into a softening cycle, resulting in declining rates, increased competition and widely available capacity.
Kyle Menendez, Managing Director, Howden Re, said: “Reassessing volatility protection is critical as the cycle turns. Catastrophe pressures have structurally increased as primary rates have softened. Carriers have a clear opportunity to strengthen reinsurance programmes before severe losses test thinner margins. Those that move early in what remains a buyers’ market can reduce earnings volatility and support disciplined growth.”
Structural rise in catastrophe losses
The average catastrophe loss load has increased from 4.4% in 2015-19 to 5.4% in 2020-25, the sharpest increase across the 25 year timeline. Frequent mid-sized events, particularly SCS have largely driven this increase. Despite this shift, the average combined ratio across the 14 insurers improved from 96% (2015-19) to 93.4% (2020-25), as higher pricing offset rising losses.
Peter Evans, Research Director at Howden, said: “The hard market helped absorb rising catastrophe losses, but it also concealed how much the underlying cost base has shifted. 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 study also finds widening gaps between carriers. The delta between the lowest and highest catastrophe loss burden expanded from 7.1 percentage points in the early 2000s to 11.7 points in 2020-25. Underwriting discipline, portfolio construction and reinsurance strategy are playing a growing role in performance outcomes.
Understanding catastrophe losses and profitability
Looking ahead, the analysis shows that if non-catastrophe performance were to return to softer market levels and catastrophe losses remained at recent averages, underwriting margins could more than halve from around 6.6% to 3%, limiting insurers’ ability to absorb losses. Crucially, recent years have not ranked among the most volatile on record, implying that profitability buffers are narrowing even without any impact from a severe shock.
Competitive conditions at 1 January 2026 reinsurance renewals created additional flexibility for buyers. Many insurers achieved savings on core reinsurance programmes, creating scope to reassess protection levels ahead of peak wind season.
Tim Ronda, CEO, Howden Re, said: “Across the January renewals and into 2026, we are seeing competition intensify in many segments. Strong recent results should not obscure the fact that the underlying risk environment still contains inherent volatility. Insurers that use this cycle transition to recalibrate their risk appetite, optimise reinsurance structures and reinforce capital resilience will be far better positioned when the next event occurs.”