Reinsurers face costly hurricane season
Published: Friday, May 24th 2024, 13:40
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People in the Caribbean, on the Gulf of Mexico and especially on the Atlantic coast in the south-east of the USA have a lot to prepare for in the coming months. The US weather authority NOAA (National Oceanic and Atmospheric Administration) expects the hurricane season to be particularly severe this year. Reinsurers such as Swiss Re have also been warned.
The 2024 hurricane season will be stronger than average. The probability of this is 85 percent. This was announced by the NOAA on Thursday evening. The authority assumes that between 17 and 25 tropical storms with wind speeds of at least 60 kilometers per hour will develop from June to November. Such storm depressions are given a name in alphabetical order, starting this year with Alberto, Beryl and Chris.
Storm forecasts well above average
The NOAA has never predicted so many hurricanes in one season. The agency is not alone in its assessment: a number of prominent weather institutes and universities are also expecting an extremely "active" windstorm season. For example, the experts at Tropical Storm Risk (TSR) are predicting 22 storms and those at North Carolina State University 15 to 20.
The forecasts are well above the multi-year average of 14 Atlantic storm lows. The main reason for the increased risk of storms is climate change and the associated higher water temperatures in the Atlantic. This will be exacerbated by the expected onset of the weather phenomenon "La Niña" with wind constellations that will cause a phase of cooler water temperatures on the Pacific coast from Peru to the USA and favor storm activity in the Atlantic, it said.
Landfall decisive
The extent of the damage to buildings, cars and other facilities and the cost of the storms to insurers and reinsurers at the end of the season depends on a number of factors. The decisive factor is how many of the storms develop into hurricanes with high wind speeds. It also depends on whether and where the storms hit land and how well the buildings and property there are insured.
The NOAA estimates that around 13 storms will become hurricanes with top speeds of at least 120 kilometers per hour. Up to seven could even become very strong hurricanes and reach wind speeds of over 180 kilometers per hour. On average, there have been seven hurricanes over the Atlantic every year in recent years, three of which have developed into major storms.
It is almost impossible to predict how many storms will hit land. However, a comparison of the last two seasons shows how differently this factor affects the extent of damage. 2023 was one of the most intense in terms of the number of storms (20), but as many storms did not make landfall and the landfall of category 4 hurricane "Idalia" occurred in a sparsely populated region, there was hardly any damage.
The situation was very different in 2022, when Hurricane Ian hit Florida as a Category 5 storm with wind speeds of up to 240 kilometers per hour and caused insured losses of over USD 60 billion, according to the Swiss Re Institute. Only Hurricane Katrina in 2005 was even more expensive, with losses of over USD 100 billion after adjusting for inflation.
Reinsurers off to a good start
The extent to which hurricane losses will impact reinsurers' balance sheets is therefore still difficult to estimate. Nevertheless, the industry giants Munich Re and Swiss Re have made a very good start to 2024 with profits in the billions and are therefore well prepared for any setbacks and natural disasters.
Few major losses, good financial transactions and higher prices brought the world's largest reinsurer Munich Re a profit of 2.1 billion euros in the first quarter, while Swiss Re earned 1.1 billion dollars. The two reinsurers have thus achieved a good portion of their profit targets for 2024 of around 5 billion euros (Munich Re) and 3.6 billion dollars (Swiss Re).
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