S&P: U.S. Insurers, Homeowners Face Greater Risks and Costs Due to Extreme Weather

(Storm damage in Chattanooga, Tenn., courtesy of Kelly/pexels.com)

U.S. insurers and homeowners face greater risks and higher costs as extreme weather events including hurricanes, wildfires and floods become more frequent and intense, according to S&P Global Ratings, New York.

In a new non-rating action report, Record Weather-Related Losses Hit U.S. Homeowners Insurers And Pose Challenges In Estimating Catastrophe Risk Charges, (subscription) S&P noted U.S. homeowners insurance companies have faced multiple years of underwriting losses amid rising severe weather events.

“Many insurers incurred sizable catastrophe losses relative to the inputs that derive our natural catastrophe charges captured in our risk-based capital adequacy model,” the report said. “While we expect limited rating pressure over the next 12-24 months for the top homeowners insurers because they are generally well-capitalized and diversified, we also believe heightened weather-related losses will underpin volatile underwriting results.”

The report noted insurers that cover states in catastrophe zones are more at risk than elsewhere.

S&P called it a “formidable task” for property/casualty insurers to create an accurate model to estimate complex weather system despite recent advancements in predictive analytics.

“While we don’t expect rating changes on homeowners insurers in the U.S., we may make adjustments in our capital analysis if we determine the models do not adequately capture the risk,” the report said.

S&P said rising insurance costs not only reflect immediate risks, but also include anticipated long-term changes in temperature and precipitation patterns as well as demographics that threaten insurability and safety.

“While we have not explored the implication the next version update on catastrophe models may have on the U.S. homeowner insurance market, we surmise coverage terms, set premiums, and our view on natural catastrophe risk on insurers credit quality will shift along with climate patterns,” the report said.