US insurers facing a softening market and persistent extreme weather will struggle to absorb volatility, Howden Re warns.

The global reinsurance broker’s Time to Act report says catastrophe losses have “structurally reset” to a higher baseline over the past 25 years.

It analysed 14 property and casualty carriers, finding a doubling of average catastrophe losses since the early 2000s.

Performance gaps between insurers are widening after hard market pricing masked the shift in underlying costs, it says. As rates soften, underwriting margins could compress.

Howden Re says softening is already threatening some carriers, especially those in areas potentially affected by the peak hurricane season in the third quarter.

Underwriting margins could more than halve from 6.6% to 3%, reducing the ability of insurers to absorb losses, the report notes.

“Many carriers are examining whether to take advantage of favourable reinsurance market conditions to hedge rising catastrophe-driven volatility and protect profits as hard market tailwinds recede.”

Howden Re CEO Tim Ronda says insurers recalibrating their risk appetites, optimising reinsurance structures and reinforcing capital resilience will be well positioned.

MD Kyle Menendez adds carriers will be better positioned if they strengthen reinsurance programs before severe losses test thinner margins.

“Those that move early in what remains a buyers’ market can reduce earnings volatility and support disciplined growth. Reassessing volatility protection is critical as the cycle turns. Catastrophe pressures have structurally increased as primary rates have softened.”