Battled by storms, P/C carriers seek higher prices, advanced models

Property/casualty insurance companies suffered large losses in 2023 not from major catastrophes, but primarily from a series of severe convective storms, Moody's Investors Service reports. These storms, which include hail, straight line wind and tornado, are non-peak (or secondary) perils, which means they are more frequent but individually less costly than primary perils such as hurricanes.

In recent years, growing insured exposures, higher property reconstruction costs,
increased litigation and changes in claims settlement practices have contributed to higher
weather related losses for P/C insurers, Moody's reported. Convective storms are difficult to predict from a meteorological forecasting standpoint, and climate variability adds to the unpredictable nature of these events.

Non-peak perils have accounted for over 50% of global insured natural catastrophe losses on
average over the past six years. Severe convective storms were the main contributor to these
losses in 2023, estimated at $60 billion out of $100 billion according to Swiss Re.

According to Aon, 2023 insured losses from US catastrophes were close to $80 billion.
Severe convective storms drove a record number of total insured losses from non-peak
perils of $58 billion, well above the 10-year average and surpassing the prior record in 2020. Texas and Colorado were especially hard hit by hail.

According to Gallagher Re, two drivers contributed to the increase in insured losses. First, homes are aging and older homes are more costly to repair, especially at a time when inflation has driven construction costs higher. Second, population density has increased in areas prone to severe convective storms. Since 2010, the housing count in the Great Plains has grown 18% per year.

Primary insurers are also retaining more catastrophe risk as reinsurers have reduced their own exposures. Based on average aggregate modeled probable maximum losses for a sample of primary insurers across the U.S. at the 1 in 10 year return period, primary insurers have retained more risk relative to their gross exposure since 2020.

In contrast, many reinsurers have reduced exposure to higher frequency risks, particularly at the lower return periods.

Companies had already been raising premium rates and coverage levels as a result of elevated construction costs, high catastrophe losses and increased reinsurance costs. Moody's said this year’s severe convective storms will reinforce the need to seek further rate increases and take other underwriting actions, such as tightening terms and conditions around weather related perils (percentage wind/hail deductibles in the Midwest).

However, Moody's said it expects premium growth to be slower in 2024 than in recent years, and coverage level increases are also likely to slow.