Reinsurance pricing for US catastrophe risk has surged to 280% of 1990 levels, driving a 28% increase in homeowners’ premiums since 2017 and prompting a proposal for a federal reinsurer, “US Re” to stabilize capital and absorb extreme losses.
The proposal from The Hamilton Project links recent premium increases to rising costs in catastrophe reinsurance, where pricing and capital requirements have become more volatile. Inflation-adjusted homeowners’ insurance premiums increased from about $2,100 to $2,700 between 2017 and 2024, according to the report.
Reinsurance pricing has risen alongside large catastrophe losses and reduced returns. The rate-on-line index, which measures the price of reinsurance per dollar of coverage, reached about 280% of its 1990 level in 2023 and 2024, with only modest easing afterward.
Catastrophe insurance pricing includes expected losses plus additional charges tied to capital costs and uncertainty. These components have increased due to the difficulty of estimating tail risks and the need for reinsurers to hold capital against potential large-scale losses.
The report connects pricing volatility to long-term changes in catastrophe risk. The number of US disasters exceeding $1 billion has risen from an average of 3.3 per year in the 1980s to 23 per year in the 2020s, while insured catastrophe losses have quadrupled over the past 25 years.
Losses from correlated events complicate underwriting and capital planning. For example, insured hurricane losses in Florida exceeded $17 billion in 2005, fell to zero between 2006 and 2016, and then reached $24 billion in 2017.
Historical estimates cited in the report indicate that a $10 billion catastrophe loss can raise reinsurance contract prices by 19% to 40%, illustrating the sensitivity of pricing to large events.
Primary insurers have responded to higher reinsurance costs by increasing premiums, adjusting coverage terms, and limiting exposure in high-risk areas. In some cases, insurers have exited markets or faced insolvency.
These changes have reduced availability of private coverage and increased reliance on state-backed insurers of last resort. Premium increases and coverage limits have contributed to affordability concerns for households.
The report states that 12% of homeowners did not carry insurance in 2023, indicating a gap in coverage.
Rising premiums have also affected housing markets. Evidence cited in the report shows slower home price growth in high-risk areas and increased financial pressure on households facing higher insurance costs.
The proposed US Re entity would provide reinsurance for extreme catastrophe losses, focusing on tail risks that are difficult for private markets to finance. The program would sell reinsurance contracts to insurers and reinsurers, covering losses above specified attachment points.
The report states that a federal reinsurer could offer a more consistent source of capital due to the government’s ability to borrow at lower rates and on a larger scale than private market participants.
By reducing the cost of capital and uncertainty loads in pricing, the proposal suggests that premiums could decline and insurance availability could increase, while private insurers continue to play a central role in underwriting and distribution.
The proposal outlines three principles for the federal reinsurer: pricing risk, targeting market failures, and maintaining credibility. Pricing would be based on expected losses and costs rather than subsidies, while focusing on areas where private markets face constraints.
The report draws on existing programs, including the National Flood Insurance Program, the Terrorism Risk Insurance Act, and Florida’s Hurricane Catastrophe Fund, to illustrate trade-offs in public intervention.
It notes that maintaining political independence in pricing and preserving private market participation are important considerations in program design.
Volatility in reinsurance markets affects both pricing and availability of coverage. High markups above expected losses reduce insurance take-up and increase reliance on public disaster assistance following major events.
Insurance market instability also influences mortgage lending and property transactions. Stable catastrophe insurance markets contribute to housing market activity and post-disaster recovery, while volatility introduces financial risk for households.
The report concludes that continued increases in climate-related risk are likely to sustain pressure on reinsurance markets, with implications for insurers, policyholders, and public finances.
