Homeowners insurance profitability has improved in recent years, even as catastrophe risks continue to escalate, according to a new report from Moody’s.
The sector has seen gains in underwriting results, with insurers implementing rate increases, tightening policy terms, and refining risk selection. These actions have helped offset the impact of inflation, higher reinsurance costs, and growing exposure in regions prone to natural disasters.
However, Moody’s notes that the effectiveness of these measures differs by jurisdiction, largely due to regulatory constraints and market structures.
According to Verisk, the global modelled insured average annual property loss (AAL) from natural catastrophes reached US$152 billion in 2025, marking a US$32 billion increase from 2024. This figure signals that the insurance industry should prepare for annual insured property losses from natural disasters that may exceed this amount.
The report attributes the rise to factors such as inflation, urban growth, increased event frequency, and climate change. Over the last five years, insured losses have averaged US$132 billion annually, up from US$104 billion in the previous five-year period, reflecting a sustained increase in losses for insurers.
Despite these improvements, volatility remains a key feature of the homeowners insurance market. Insured catastrophe losses reached US$145 billion in 2024 and nearly US$100 billion in the first half of 2025, Moody’s reported.
The Los Angeles wildfires alone accounted for US$40 billion of the 2025 total. Wildfire losses in North America have been particularly significant, with the 2025 Palisades and Eaton fires resulting in up to US$65 billion in economic losses, of which 60–70% were insured.
As nonpeak perils – such as secondary weather events – have increased as a share of total catastrophe losses, insurers are retaining more risk. This shift is partly due to reinsurers raising attachment points, which has also led to consumers in some regions, including the US, shouldering a greater portion of the risk.
Moody’s highlights that the use of data analytics and predictive modelling is becoming a significant differentiator among insurers. Companies are leveraging historical loss data, geospatial analytics, and climate scenario modelling to enhance their understanding of catastrophe risk.
Predictive analytics are being used to improve claims forecasting and detect fraud, while aerial imagery and artificial intelligence are helping assess property vulnerability to natural disasters. Insurers that adopt these technologies are better positioned to manage risk and maintain profitability.
Public policy responses to the growing weather-related risk vary by country, Moody’s observes. Some US states and countries have established government or industry-backed insurers of last resort to address issues of insurance availability and affordability.
However, the approaches are not uniform, and the protection gap – the difference between economic and insured losses – remains significant.
As climate risks evolve, Moody’s suggests that a combination of public and private initiatives, including government-sponsored re/insurers, will likely be necessary to ensure adequate insurance coverage in high-risk areas.
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