KBRA: Insurers entered 2025 hurricane season with enhanced financial strength

By Mia MacGregor

July 1 - (The Insurer) - U.S. property and casualty insurers are better prepared to weather the 2025 Atlantic hurricane season due to bolstered capital adequacy and reserve positions, according to a KBRA report published on Monday.

The report highlighted strengthened balance sheets driven by robust underwriting results and rate increases, leading to record surplus positions as of Q1 2025.

KBRA emphasized that insurers' improved capital strength offers a substantial cushion against catastrophe losses, positioning them better than in prior years amid National Oceanic and Atmospheric Administration (NOAA) forecasts for a 60% chance of above-normal storm activity.

However, KBRA warned that increased hurricane frequency could pressure key financial metrics, with capital adequacy, underwriting margins, reinsurance pricing and reserve strength remaining critical for the rest of 2025.

The report noted that the reinsurance market is showing signs of moderation amid abundant global capacity following several years of steep rate hikes.

Reinsurance pricing changes ranged from low single-digit increases to reductions of up to 15% at June renewals, despite an active 2024 hurricane season and significant losses from California wildfires.

Many insurers have adjusted their reinsurance structures, retaining more low-level losses or utilizing captives due to plentiful capacity easing pressure at the top of reinsurance programs, KBRA noted.

Underwriting margins improved in 2024 but faced pressure in Q1 2025 due to wildfire losses, with forecasts for another active hurricane season posing profitability risks for catastrophe-exposed regional carriers.

KBRA warned that major hurricanes making landfall could swiftly push combined ratios above 100%, generating underwriting losses and eroding surplus positions.

While prudent pricing and strong reserves remain crucial to absorb potential losses, KBRA said that it expects stability in insurance financial strength ratings for most of its rated universe, provided the 2025 season remains manageable.

KBRA's ratings reflect an expectation of moderate storm activity, with isolated downgrades possible for insurers facing outsized losses relative to capital. However, absent a severe hurricane season, most insurers should absorb storm-related losses through earnings or surplus without impairing their claims-paying ability.

If the season is quieter than predicted, insurers may benefit from strong underwriting results, further boosting capital and potentially generating favorable rating momentum, KBRA highlighted.