Hurricanes keep Florida and the insurance industry on tenterhooks
Published: Tuesday, Oct 8th 2024, 12:50
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Florida is preparing for the next devastating storm. Shortly after "Helene", hurricane "Milton" is now heading towards the US state with force. As feared by experts, 2024 is shaping up to be a year characterized by many major storm fronts. This will also put pressure on insurers' balance sheets.
In the last few days, hurricane Milton has developed into a category 5 hurricane over the Gulf of Mexico with wind speeds of up to 260 kilometers per hour. According to US media, it is one of the strongest hurricanes in history. Nevertheless, it has recently weakened slightly to a category 4 storm.
According to experts at the National Hurricane Center NCH, "Milton" is expected to make landfall on Florida's west coast on Wednesday (tomorrow). Preparations are in full swing there: doors and windows are being barricaded, sandbags are being filled and the authorities have declared a state of emergency and ordered evacuations.
It remains to be seen how bad "Milton" will actually hit the Sunshine State and depends on whether it will continue to hit the heavily populated areas around the city of Tampa with full force. It is also unclear how high the destruction and the associated costs for the population and insurance companies will be.
Expensive hurricane "Helene
Just over a week ago, the second-highest category hurricane "Helene" made landfall in northwest Florida. The storm then weakened, but caused severe flooding and destruction on its way north. More than 200 people in six states lost their lives.
Initial estimates show how hard a major hurricane like "Helene" can hit insurers. The analysis department of the rating agency Moody's estimates the loss costs for private insurers at 8 to 14 billion US dollars. The still wide range shows how uncertain this estimate is.
According to Moody's RMS, the insured losses primarily include damage to buildings and business interruptions in companies. Further losses of more than 2 billion dollars would be covered by the National Flood Insurance Program (NFIP). And the uninsured losses could even amount to 25 billion dollars.
Active hurricane season
With "Helene" and "Milton", the active 2024 hurricane season expected by weather experts in advance is picking up speed. So far, four hurricanes have made landfall in the USA during the season, which runs from June to November. The last time this happened was in 2020.
The US weather agency NOAA predicted that between 17 and 25 tropical storms with wind speeds of at least 60 kilometers per hour would develop this season. Other institutes also predicted an above-average number of hurricanes.
According to experts, the main reason for this is climate change and the associated warm water temperatures in the Atlantic. This is exacerbated by the weather phenomenon "La Niña", which prevails on the Pacific coast off Peru as far as the USA, with cooler sea temperatures, which supports storm activity in the Atlantic.
Nervous investors
In the first half of the year, storms, especially severe thunderstorms in the USA, have already caused billions of dollars in damage worldwide. According to estimates published by the Swiss Re Institute at the beginning of August, insured natural disasters amounted to 60 billion dollars.
This was compounded from July onwards by the storm "Boris", which caused major flooding in Eastern Europe, as well as heavy thunderstorms and rainfall in France, the UK and Scandinavia. And now two hurricanes are threatening the USA with costs in the double-digit billion range.
This is causing nervousness among investors. Major reinsurers such as Swiss Re or Munich Re, to whom primary insurers usually pass on large portions of the claims costs in the event of major events, are feeling the effects.
Swiss Re shares have lost around 6 percent of their value in two weeks, with neighboring Munich Re losing roughly the same amount. Since the beginning of the year, however, both shares are still doing very well in a market comparison (SMI: +7 percent) with price increases of 15 and 25 percent respectively. The prospect of further increases in tariffs provides support, as major loss events generally result in further price increases.
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