As Hurricane Ian barreled toward Florida last September, Jason Voss and Dawn Jacobson were prepared. They had drained the pool, moved the outdoor furniture, and hunkered down with their hurricane kit in the safest room of their home in Sarasota, a few miles from the Gulf Coast.
Florida, while extreme, reflects a national collision between increasingly calamitous weather and the insurance industry. Caught in the middle are homeowners, though investors could benefit as insurers hike prices, lifting revenues and potential profits. “Simply put, it’s the fact that prices are up and terms and conditions are tighter,” says Juan Andrade, CEO of Everest Group , a reinsurance specialist that is expected to boost net income by 28.6% next year to $2.5 billion, according the consensus forecast. “It’s more conducive for an insurer or reinsurer to do business.”
The price hikes reflect inflation in home replacement costs, up 55% from 2019 to 2022. Insurers are also trying to rebuild capital and profits after years of above-average payouts for catastrophe-related claims. Losses from natural disasters covered by insurance reached $120 billion last year, well above average for the prior five years, according to Munich Re, the world’s largest reinsurer.
“Several things surprised us during the first six months of the year, but probably the most important was severe convective storm losses in the United States that were record-breaking,” says Michal Lörinc, head of catastrophe insight at Aon. Industry executives say their models are being updated to assess rising risks, such as wildfires, as the planet warms. “U.S. wildfire is an increasingly significant peril, and we’re going to have to turn more attention to how it is modeled,” says Kirsten Mitchell-Wallace, director of portfolio risk management at Lloyd’s of London, the world’s oldest insurance marketplace.
For homeowners, one bit of reassurance is that the industry has stocked up on capital to pay rising claims. According to the Insurance institute, U.S. P&C companies had $990 billion in capital at year-end 2022, down slightly from 2021, when the surplus topped $1 trillion for the first time, but up from $891 billion in 2019.
Prices for U.S. property insurance look especially strong. Prices were up 19% year over year in the second quarter, accelerating from a 17% annualized gain in the first quarter, according to the Marsh Pricing Index. Prices have now risen for 23 consecutive quarters. Catastrophe losses are the wild card—more elevated losses would punish profits. While that’s unpredictable, Allstate is pledging to control expenses and zero in on profitable markets. Analysts expect the combined ratio to decline to 97.1 in 2024 and 94.9 in 2025. UBS analyst Brian Meredith, who has a Buy rating on the stock, sees Allstate at an “inflection point.” Shares trade at just nine times estimated 2024 earnings, a slight discount to rivals.
Ryan Specialty is an insurance broker focused on “excess and surplus” lines—things that standard carriers don’t provide, such as customized plans, niche insurance, and workers’ compensation. CEO Patrick Ryan, who previously ran Aon, launched the firm in 2010; today it’s the second-largest wholesale P&C broker, with an estimated $2.1 billion in sales this year.