Assessing Underwriting Resilience in a High-Volatility Era: Climate Risk Exposure in Insurance Firms

The insurance industry's ability to withstand and adapt to climate-driven volatility has become a critical factor for investors. As 2025 unfolds, insurers face a dual challenge: mitigating the escalating costs of climate disasters while innovating to maintain profitability. Recent data and industry reports reveal a sector in transition, balancing reactive risk transfer with proactive resilience strategies. This analysis examines how leading firms are navigating these pressures-and what it means for their long-term investment viability.

The Rising Stakes of Climate Risk

Global insured losses from climate-related events reached $162 billion in 2025, with the U.S. accounting for 90% of these costs, according to a WEF report. The Southern California wildfires in early 2025 alone caused $35–$40 billion in insured losses, underscoring the scale of emerging perils, as noted in a IRMI commentary. These events have forced insurers to reevaluate traditional underwriting models. According to a Everest Re Group report, firms are increasingly adopting predictive risk modeling, AI-powered alerts, and sensor-based monitoring to enhance disaster preparedness. Such tools enable insurers to shift from post-disaster payouts to pre-emptive risk mitigation, a critical evolution in high-volatility contexts.

Underwriting Gains Amidst Catastrophe

Despite the rising frequency of disasters, the property and casualty (P&C) insurance sector recorded a significant underwriting gain of $22.9 billion in 2024, with a combined ratio of 96.6%-a 500-basis-point improvement from 2023, as detailed in the IRMI commentary. This resilience stems from aggressive rate increases in personal lines, which outpaced claims costs, and strategic diversification into multi-year policies and parametric insurance products, according to a PwC report. However, secondary perils like wildfires and convective storms continue to strain primary insurers, highlighting the uneven nature of risk distribution.

Technological Innovation as a Buffer

Over three-quarters of U.S. insurers implemented generative AI across underwriting, claims triage, and customer engagement in 2024, according to the IRMI commentary. These technologies are not just streamlining operations but also enhancing risk assessment precision. For example, AI-powered predictive models now incorporate real-time satellite data and climate projections to refine pricing and policy terms, as noted in the IRMI commentary. This shift from experimentation to scalable execution is expected to bolster capital resilience, particularly in regions prone to localized flooding or wildfire risks, according to the IRMI commentary.

Strategic Collaborations and Market Gaps

Insurers are also partnering with governments and NGOs to invest in resilient infrastructure and prevention strategies. A PwC report emphasizes the need to close the "protection gap" in low-income countries, where climate risks are often underinsured. While this presents long-term opportunities, it also requires capital allocation discipline. Firms that balance immediate profitability with strategic investments in resilience infrastructure-such as flood barriers or wildfire-resistant building codes-are likely to outperform peers in volatile markets, as noted in the Everest Re Group report.

Risks and Opportunities for Investors

For investors, the key differentiator lies in firms' ability to integrate climate resilience into their core operations. Insurers with robust AI-driven underwriting systems, diversified risk portfolios, and active participation in public-private partnerships are better positioned to navigate 2025's challenges. Conversely, those relying on outdated models face margin compression and capital strain, particularly in regions with escalating climate risks.

The path forward is not without hurdles. The North Atlantic hurricane season's $154 billion in insured losses in 2024, as reported in the IRMI commentary, serves as a stark reminder of the sector's exposure. Yet, the industry's pivot toward proactive risk management-and its embrace of technology-offers a blueprint for sustainable growth.

Conclusion

Climate risk is no longer a peripheral concern for insurers; it is a defining factor in their underwriting resilience. As 2025 progresses, firms that leverage innovation and collaboration to transform risk into opportunity will lead the sector. For investors, the imperative is clear: prioritize insurers with agile risk models, technological agility, and a commitment to long-term resilience.