KBRA releases research examining the implications of the 2025 Atlantic hurricane season and the evolving reinsurance market for the U.S. property and casualty (P&C) insurance sector. The 2025 hurricane season is forecast to exceed normal activity levels, with the National Oceanic and Atmospheric Administration (NOAA) predicting approximately 16 named storms, eight hurricanes, and four major hurricanes. This outlook, driven by exceptionally warm Atlantic waters and conducive atmospheric conditions, raises the probability of significant insured losses, especially if storms make landfall in densely populated or high-value coastal areas.

Despite these risks, KBRA believes that most U.S. P&C insurers are entering the season in a position of financial strength, supported by record policyholder surplus levels, solid reserve positions, and disciplined underwriting. In addition, the reinsurance market is showing signs of stabilization after several years of hardening. Mid-year 2025 reinsurance renewals were generally oversubscribed, with many carriers securing coverage at flat to modestly lower rates, particularly for higher layers of protection.

Key Takeaways

• Above-average hurricane activity expected: The average market forecast points to an above-normal 2025 Atlantic hurricane season, with approximately 16 named storms, eight hurricanes, and four major hurricanes, which is higher than the 1991–2020 averages. The NOAA gives a 60% chance of above-normal activity due to unusually warm Atlantic waters and low wind shear.
• Strong capital and reserves provide robust buffer: U.S. insurers have bolstered their capital adequacy and reserve positions, with most carriers ending 2024 with record surplus positions that have been largely maintained through Q1 2025. This capital strength provides a substantial cushion against catastrophe losses, and insurers are better positioned to absorb a severe hurricane season shock than in prior years. Robust earnings and manageable storm seasons have allowed many companies to strengthen their capital bases.
• Abundant reinsurance capacity: The reinsurance market remains somewhat hard but showed signs of moderation through 2025 renewals amid abundant global capacity. After several years of steep rate hikes, feedback from KBRA-rated primary carriers indicates that property catastrophe reinsurance pricing ranged from low single-digit increases to 10%-15% lower at the June renewals, despite an active 2024 hurricane season, significant losses from California wildfires, and ongoing macroeconomic volatility. Dedicated reinsurance capital also rebounded by year-end 2024, driven by strong growth in alternative capacity—supported by record catastrophe bond and insurance-linked securities (ILS) issuance—as well as increased traditional capacity, with higher prior-year premiums continuing to earn in. Reinsurers continue to command high rates for lower layers of coverage, but plentiful capacity has eased pressure at the top of reinsurance programs. As a result, many insurers have adjusted their reinsurance structures, retaining more low-level losses or utilizing captives.
• Underwriting profitability faces catastrophe event risk: Primary carrier underwriting margins improved markedly in 2024 after years of volatility, aided by rate increases and relatively manageable catastrophe losses. Underwriting margins were pressured in Q1 2025 for select large national carriers following huge wildfire losses. Notably, an active 2025 hurricane season could erode earnings for catastrophe-exposed regional carriers. Major landfalling hurricanes could swiftly push combined ratios back above 100%, generating underwriting losses and eroding surplus positions. While prudent pricing and strong reserves will remain crucial to absorb potential catastrophe losses, KBRA expects stability in its Insurance Financial Strength Ratings (IFSR) for most of its rated universe—provided 2025 marks another year of manageable storm activity.

While a severe storm season could pressure earnings and select capital positions, KBRA expects that prudent reinsurance structures and risk-adjusted capitalization will help most insurers navigate potential losses. Conversely, another manageable storm year may further bolster industry surplus and support stable rating trends.

Click here to view the report.

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About KBRA

KBRA, one of the major credit rating agencies, is registered in the U.S., EU, and the UK. KBRA is recognized as a Qualified Rating Agency in Taiwan, and is also a Designated Rating Organization for structured finance ratings in Canada. As a full-service credit rating agency, investors can use KBRA ratings for regulatory capital purposes in multiple jurisdictions.

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