A new AM Best report warns that nearly half of all U.S. states have experienced record-breaking property catastrophe loss ratios, exceeding their 10-year medians by over 20 percentage points, underscoring an urgent need for insurers to reevaluate risk strategies in light of secondary perils.
Historically considered less susceptible to catastrophic weather, many states are now grappling with the mounting impact of severe convective storms, inland flooding, and wildfires. These events, known as secondary perils, are emerging as a critical source of loss, reshaping the risk landscape for property and casualty (P&C) insurers nationwide.
A Surge in Billion-Dollar Weather Events
The frequency of billion-dollar weather events in the U.S. has climbed sharply. AM Best reports 27 such events in 2024 and 28 in 2023—despite the absence of NOAA-named hurricanes. This marks a dramatic rise from the 2010–2022 annual average of 15. The broader geographic spread of these events is straining insurers’ financial resilience and testing underwriting assumptions.
Local and regional insurers appear most vulnerable. In Kentucky, for example, carriers with only 18% of the state’s premium share absorbed nearly 25% of 2023’s catastrophe losses. Similar patterns are emerging in other catastrophe-prone states, where smaller carriers face heightened concentration risk and increasing exposure.
Stress Testing Takes Center Stage
In its special report, U.S. Weather Event Risks Highlight Need for Stress Testing, AM Best underscores that insurers must embed robust stress testing into their enterprise risk management (ERM) frameworks. Traditional models based on historical worst-case events are no longer sufficient. Instead, AM Best recommends expanding stress tests to account for:
- Emerging and geographically shifting perils
- Compound loss scenarios involving multiple smaller events
- Risk tolerance and capital adequacy
- Reinsurance structure and liquidity constraints
With reinsurance conditions tightening, particularly for catastrophe-heavy regions, many insurers are retaining more risk directly. Limited availability of aggregate protection has amplified the effects of multiple mid-sized events, as seen in California’s recent wildfire season.
Scale Offers a Buffer — But Not Immunity
Insurers with broader geographic footprints are better positioned to absorb localized losses and maintain capital stability. AM Best notes that national carriers accounted for nearly 87% of catastrophe losses paid in 2023, yet single-state and regional insurers are shouldering disproportionate burdens relative to their size.
From 2021 to 2024, smaller carriers experienced 31% of all downgrades among property catastrophe writers despite controlling only 38% of the market, an indicator of rising financial stress tied to regional loss events.
Still, the report emphasizes that even large insurers must prioritize frequent, comprehensive stress testing. Those with deeply integrated ERM practices are more likely to adapt effectively to new patterns of loss.
Future-Proofing the P&C Sector
As weather-related catastrophes grow more unpredictable and extend beyond traditional hotspots, the pressure on insurers will intensify. AM Best’s Taylor Mixides and colleagues assert that only those companies with proactive risk management, informed stress testing, and diversified portfolios will be equipped to navigate the volatility ahead.
For insurers, stress testing is no longer optional—it’s a strategic imperative. Understanding real exposure, preparing for compound risks, and maintaining balance sheet resilience will be crucial in an era where secondary perils are rapidly becoming primary threats. You can purchase the report here.
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