KBRA Updates P/C Insurer Ratings Methodology Amid Growing Weather Risks
KBRA, a leading ratings agency, is updating its assessment of property/casualty insurers. The new method will consider how companies adapt to evolving risk profiles and utilise risk transfer prudently. Meanwhile, Florida and other Southeastern states face increased hurricane exposure due to population growth and new home construction.
KBRA's research suggests insurers may face isolated downgrades if they experience outsized losses relative to capital. However, a second consecutive year of strong underwriting results is possible if weather events remain manageable. The agency acknowledges the growing threat of wildfires and severe convective storms, which are spreading beyond traditional regions.
Both traditional and emerging catastrophe-modelling firms have improved their secondary-peril modelling capabilities. However, forecasting hurricane losses remains a challenge. Globally, companies like Swiss Re and Munich Re have adapted their risk management strategies in response to climate-related risks.
Following the California wildfires in January 2025, the state accepted the use of third-party modelling in rate filings. This has driven investment in next-generation modelling tools. In Florida, insurers are retaining more weather-related losses due to reinsurers raising prices and tightening terms, leading some larger firms to reduce coverage or withdraw from high-risk areas.
Historically, insurers managed weather-related losses through indemnity-based reinsurance programs. However, alternative risk transfer solutions like parametric coverage and insurance-linked securities (ILS) are expanding.
KBRA expects moderate weather-related loss activity in the near future, with most insurers able to absorb storm-related losses without significantly affecting their overall claims-paying ability. As insurers adapt to evolving risks and invest in advanced modelling tools, the industry's resilience to severe weather events is likely to improve.
