S&P Global Ratings’ latest stress test suggests that large global insurers and reinsurers would, in most cases, stay within their existing rating categories after a severe natural catastrophe, even as extreme weather continues to contribute to elevated loss levels. The report, “Charts Show Global Insurers Can Manage Extreme Natural Disaster Scenarios,” released May 5, analyzes how rated insurers would perform under a modeled 1-in-250-year catastrophe event.
“Our model shows that credit quality remains broadly stable, largely due to high capitalization and ample use of reinsurance and retrocession. Our stress test further highlights that our credit ratings appropriately incorporate exposure to natural catastrophes,” said S&P Global Ratings credit analyst Craig Bennett. S&P sets the analysis against a recent run of large events. Hurricane Ian in 2022 generated about $60 billion in damage, while California wildfires in 2025 resulted in more than $40 billion in claims. The agency said insured losses worldwide exceeded $100 billion in 2025 for the sixth consecutive year, describing elevated catastrophe losses as a persistent feature of the market.
S&P applied its risk-based capital model to all rated primary insurers and reinsurers, using confidential data to assess capital adequacy under a 1-in-250-year event. The scenario includes earthquakes and other perils, but the agency noted that a large share of private-market exposure is tied to climate-related events. Among the 50 insurers with the largest gross natural catastrophe exposure, the modeled loss left an average capital surplus of 18%. On average, catastrophe risk represented about 70% of the remaining surplus in that scenario.
The analysis also identified a group of insurers whose capital metrics would come under pressure. About 10% of insurers in the sample saw capital adequacy fall below the level that S&P typically links to their current rating once the stress was applied. For entities that are part of larger groups, S&P said potential extraordinary group support forms part of its rating judgment. S&P also ran a 1-in-500-year scenario. The top 50 insurers collectively hold about $1 trillion in capital, with an average capital redundancy of 24% forecast at year three. Under a 1-in-250-year event calibrated to the highest underwriting loss-to-capital ratios, that redundancy would decline by about $110 billion, to around 18% on average. In the 1-in-500-year case, S&P estimated that about 60% of these insurers would still have a capital surplus at the level associated with their current ratings.
The report details how risk transfer and catastrophe pricing shape net exposure. The 50 insurers with the largest natural catastrophe exposure face a combined gross exposure of about $430 billion under the 1-in-250-year event. After reinsurance and retrocession, mean exposure falls from about 34% of capital to about 15%, or roughly $225 billion on a net basis. Catastrophe premium loadings further reduce residual exposure, bringing mean net exposure to around 8% of capital. In the modeled 1-in-250-year scenario, S&P estimated that capital would decline by about 8% on average, a level that, in many cases, could be covered by one year’s earnings. Across insurer types, reinsurance utilization is broadly consistent at about 50%, according to the agency. Larger insurance groups in the sample show lower risk concentration and relatively less dependence on reinsurance: in S&P’s scenario, net exposure to capital for the cohort falls to about 20%, supported by average reinsurance cover of around 50%.
The report shows that capital strain is uneven among the most exposed insurers. For the 50 insurers with the highest underwriting loss-to-capital ratios, a 1-in-250-year stress event would reduce capital by about 10 percentage points on average. S&P said this level of exposure could affect stand-alone credit quality for some entities. Within this group, 11 insurers would have capital that S&P views as below the level consistent with their current rating under the stress. Another 14 would be left with a capital buffer of less than 10%. The agency noted that group support and other qualitative considerations may influence final rating outcomes for some of these firms. Overall, the top 50 insurers hold about $1.0 trillion in capital and, before stress, show an average forecast capital redundancy of 24% at year three. After a severe event, S&P’s modeling indicates that a capital buffer of about $80 billion remains under a 1-in-500-year stress.
S&P stated that the stress test results are broadly aligned with how it already reflects catastrophe and other risks in its ratings. For the 50 insurers with the largest underwriting risk relative to capital, the agency’s financial risk profile assessments include 55 negative notches. Of these, 41 relate to the level of risk exposure, with the remainder tied to other capital and earnings volatility factors. The ratings on about 80% of insurers with relatively high underwriting risk compared with capital are adjusted for these additional risks, according to S&P. Risk exposure adjustments generally address elevated natural catastrophe or investment risk, while capital and earnings adjustments can reflect factors such as scale and earnings variability.
Across primary insurers, groups such as Allianz Australia Insurance Ltd., AXA, Chubb Ltd., State Farm Mutual Automobile Insurance Co., Travelers Companies Inc., Insurance Australia Group Ltd., Tokio Marine & Nichido Fire Insurance Co. Ltd., and Zurich Insurance Co. Ltd. hold financial strength ratings in the A to AA categories. Under S&P’s framework, these entities have business and financial risk profiles spanning from strong to excellent. Among reinsurers, firms including Munich Reinsurance Co., Swiss Re Ltd. and the Society of Lloyd’s also sit in the A to AA range. S&P assesses their business risk profiles as strong or very strong, and financial risk profiles from very strong to excellent.
The report outlines several considerations for capital and catastrophe management. At a sector level, S&P’s modeling links current capital positions, reinsurance, and retrocession structures and catastrophe premium loadings with lower modeled net losses in extreme events. At the same time, a subset of carriers in the sample would experience rating pressure if a 1-in-250-year loss materialized under current assumptions. S&P said that prudential risk management, including the use of reinsurance and retrocession and the treatment of catastrophe exposure in pricing, is a central element in its assessment of the financial strength of the 50 rated global insurers with the largest net catastrophe exposure. The agency said it uses this type of stress testing as part of its ongoing surveillance of insurer credit quality as catastrophe losses remain elevated.
