How insurers are positioned to respond to the 2024 hurricane season
The Atlantic hurricane season officially begins this weekend with the start of June and runs through November.
Based on recent weather patterns and modeling to date, insurers and policyholders are hoping for the best but expecting the worst when it comes to the 2024 hurricane season.
The Atlantic hurricane season typically runs from June through November.
Among the trends contributing to forecasting ambivalence: “Weakening wind shear over the Caribbean Sea and tropical Atlantic Basin from La Niña-related atmospheric conditions,” Fitch Ratings reports.
Insurers and reinsurers are preparing for “what could be the busiest hurricane season on record,” Fitch Ratings said in a statement pegged to the release of its U.S. Hurricane Season 2024 report.
But the news is not all dour for the insurance sector.
“Recent premium rate increases, combined with benefits from legislative changes to the Florida market, and growth in surplus mean the market is better able to withstand extreme loss events,” Fitch Ratings Senior Director Gerry Glombicki says in the report.
“The overall industry’s capital strength provides support to withstand a significant hurricane event in 2024,” Fitch continues. “Industry policyholders’ surplus (PHS) grew 6% in 2023 and stands just over $1 trillion, but is slightly below the peak set in 2021. Fitch forecasts that the 2024 industry surplus will continue to show modest growth.”
Researchers note that weather forecasters predict between 17 and 25 named storms in 2024, with four to seven of them developing into major hurricanes. These numbers reflect more hurricane activity than the last three decades.
Hurricane Katrina (2005) and Hurricane Harvey (2017) currently hold the dubious position of being the most expensive on record. The former cost around $198.8 billion while the latter logged $158.8 billion in losses, according to the National Oceanic and Atmospheric Administration.
Moody’s also weighed in recently with hurricane-related insurance forecasting.
“North Atlantic Hurricanes have cost the insurance industry $275 billion in insured losses since 2017, when the 12-year hurricane drought ended,” Moody’s Managing Director of Insurance Julie Serakos said in a prepared statement pegged to the start of the 2024 season. “Event losses are escalating due to population increases in coastal areas, social inflation, construction inflation, and regulatory mandates.”
Moody’s stated that reinsurers stand ready to respond.
“Property catastrophe pricing remains high, although more competition is entering the market, particularly at the top end of reinsurance programs,” says James Eck, vice president and senior credit officer for the Financial Institutions division of Moody’s Ratings. “Reinsurance terms and conditions generally remain firm, with primary insurers retaining more risk at lower return periods.”
Experts acknowledge, however, that a costly hurricane season could exacerbate current insurance affordability and coverage challenges. LendingTree reports that home insurance rates in the U.S. increased more than 37% since 2019. This year alone has seen an average home insurance increase of 5.8%.
“Exposure to a strong storm could affect ongoing conversations around risk appetite and alternative risk transfer for lenders and borrowers,” Natalie Ambrosio Preudhomme, associate director of Commercial Real Estate at Moody’s said in a statement. “Meanwhile, every passing hurricane season informs our broader understanding of the shifting long-term viability of coastal real estate markets, painting a more detailed picture of risk, resilience, recovery, asset value and insurability in areas exposed to hurricanes.”
On the upside, some weather watchers are praising evermore sophisticated weather modeling for enabling communities to better prepare for an approaching hurricane. Of particular concern are hurricanes that undergo rapid intensification in less than a day.
“Getting a system that may not even form until two or three days prior to landfall, and then make landfall at these very high intensities, is a significant challenge,” National Hurricane Center Director Mike Brennan said during a recent public appearance.
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