The increasing cost of weather-related catastrophes is placing greater pressure on North American insurers to reassess their reinsurance arrangements, according to Marsh Re, the reinsurance and capital division of Marsh, a global professional services group providing expertise in risk, insurance, reinsurance and capital management.
In a recently published report, Marsh Re examined how losses arising from secondary perils, including severe thunderstorms, wildfires, winter storms and flooding, have become a major contributor to insured catastrophe claims across North America.
The firm suggested that conventional reinsurance strategies have not fully adjusted to this shift, with many programmes continuing to prioritise protection against large-scale disasters rather than recurring, less severe events.
Marsh Re indicated that the growing financial significance of secondary perils is creating new considerations for insurers seeking to manage underwriting profitability and capital requirements. The firm suggested that differences between established reinsurance purchasing practices and the frequency of actual catastrophe losses could affect insurers’ ability to manage their financial exposure.
The report cited the sustained increase in US severe convective storm losses as evidence of the changing risk environment. According to Marsh Re, annual insured losses from these events have remained above USD $30 billion since 2020, with four years recording totals exceeding USD $40 billion.
The firm also pointed to the January 2025 wildfires in Los Angeles, which generated the highest insured wildfire losses recorded to date, as an example of the potential financial consequences associated with these hazards.
Marsh Re noted that repeated moderate-sized catastrophes can collectively produce substantial losses for insurers. It illustrated this by comparing the potential financial effect of 15 medium-sized hailstorms with that of a hurricane expected to occur once every 100 years, suggesting that the combined hailstorm losses could have a greater impact on an insurer’s annual earnings.
According to the report, changes in reinsurance market conditions have added to these pressures. Following the market adjustments introduced in 2023, insurers have generally been required to retain larger portions of catastrophe losses before their reinsurance protection responds.
Marsh Re said this development has reduced the proportion of catastrophe claims absorbed by reinsurers, increasing the direct financial consequences for primary insurers when multiple weather-related events occur within a relatively short period.
The firm also examined limitations in the tools used to estimate secondary peril exposures. Although catastrophe modelling has advanced, Marsh Re reported that differences between model updates and modelling providers can produce considerable variations in estimated losses.
Its analysis found that assessments of identical insurance portfolios may generate substantially different outcomes, particularly for hazards where the underlying scientific research and modelling methods are still developing. Marsh Re identified urban conflagration as one area where uncertainty remains a significant consideration.
The report suggested that insurers should place greater emphasis on comparing model projections with their own claims records to establish whether estimated losses adequately reflect historical experience. Marsh Re also highlighted the importance of collecting more detailed information about individual properties and the measures taken by local communities to reduce vulnerability.
“The insurers that outperform over the next cycle will be the ones that bring the same discipline to hail, wildfire, and winter storm that they apply to capital planning and reinsurance strategy,” said Kim Roberts, North American Peril Advisory Leader, Marsh Re, and author of the report. “That means knowing where their portfolios are most exposed, validating models against their own claims experience, and structuring protection around repeated midsize losses, not just the rare peak event.”
As part of its recommendations, Marsh Re encouraged insurers to adopt a broader approach to catastrophe risk assessment by combining external modelling information with internal loss data. The firm said regular testing and validation could help identify discrepancies and improve confidence in the estimates used to support underwriting, pricing and capital decisions.
Marsh Re also recommended expanding the information collected about insured assets, particularly details relating to building construction, roof condition and age, and protective measures implemented at property and community level. According to the firm, greater detail could support more precise assessments of the likelihood and potential severity of future losses.
The report further suggested that insurers review the design of their reinsurance programmes to account for the cumulative effect of recurring catastrophe events. Marsh Re identified annual aggregate protection, second-event reinsurance layers and arrangements that respond at lower loss thresholds as structures that may provide a closer match to current claims patterns.
However, the firm recognised that obtaining these forms of cover at commercially acceptable prices remains difficult for some insurers. Marsh Re indicated that access to reinsurance capacity may increasingly depend on the quality of insurers’ exposure assessments and their ability to demonstrate credible modelling, effective validation and appropriate risk reduction measures.
