US P&C carriers to seek further rate increases – report

A Moody’s Investors Service report says further rate increases are to be expected from homeowners’ insurers in the US following losses from severe convective storms.

In a sector comment, Moody’s Investors Service financial institutions associate managing director Sarah Hibler noted: “US P&C (property and casualty) companies suffered large losses in 2023 not from major catastrophes, but primarily from a series of severe convective storms.

“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.”

It was pointed out that the average annual losses in the US from severe convective storms are higher than the average annual losses from hurricanes. Additionally, from a meteorological forecasting standpoint, convective storms are difficult to predict.

“In response to growing non-peak perils, insurers are incorporating more recent experience into their modeling and pricing,” Hibler said. “Many homeowners’ insurers have continued to increase their catastrophe budgets…

“Insurers are also adopting or updating severe convective storms models, which are relatively new compared to hurricane and earthquake models. Some insurers add loadings to their modeled results to reflect the possibility of higher losses, although this is a relatively blunt tool.

“Over time, we expect further progress in modeling these complex events.”

In terms of premiums, further hikes are said to be in the offing.

Hibler highlighted: “A cohort of US homeowners’ insurers reported combined ratios well above 100% for the first nine months of 2023.

“Companies had already been raising premium rates and coverage levels as a result of elevated construction costs, high catastrophe losses, and increased reinsurance costs. 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).”

Premium growth, however, is expected to be slower this year, with some carriers having opted to exit states instead.

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