Aon projects that recent hurricanes Helene and Milton are unlikely to adversely affect the US commercial property re/insurance market.
The combined insured loss estimates for the storms, which struck the Florida Gulf Coast within two weeks, are expected to range between $34 billion and $54 billion. The insurance and reinsurance markets remain well-capitalized, positioning them to absorb these losses effectively.
The short-term impact on market conditions is not expected to lead to a hardening trend. In its report, Aon Reinsurance Solutions estimates that the 2025 renewal environment will remain stable, partly due to rate increases and retention adjustments implemented in 2023.
These adjustments are expected to keep industry loss ratios from Hurricane Milton near anticipated levels, according to Tracy Hatlestad, executive managing director and global property segment leader with Aon.
Primary and reinsurance markets have shown resilience in absorbing these losses. According to Aon’s analysis of S&P Global Market Intelligence data, total direct industry policyholder surplus reached $1.1 trillion as of June 30, 2024.
Additionally, peak global reinsurer capital levels of $695 billion were recorded in the first half of 2024, suggesting that reinsurance losses from these hurricanes remain manageable. Aon anticipates a continued moderation in the primary property market through the end of 2024 and into 2025.
For accounts with high exposure in Florida and the Gulf Coast, conditions may present challenges, but Vincent Flood, head of US property at Aon, forecasts a stable property market.
“We believe markets will continue to be aggressive through the remainder of 2024 and into 2025,” Flood said.
Reinsurers have benefited from 18 months of strong performance, showing a return on equity nearly double the average cost of equity in 2023 and early 2024. Aon suggests that this strength is likely to lead to flat or potentially reduced rates in the primary market.
The increased capacity in reinsurance capital and industry surplus can be attributed to improved underwriting results and investment income, according to Peter Tavella, Aon’s chief broking officer for National Property Broking.
“That’s a function of both improved underwriting results and investment income. For all those reasons, we think the primary market is going to yield flat to potential rate reductions in the short term,” Tavella said.
Climate-related catastrophes are anticipated to shape market dynamics in the long term, as insurers adapt to more frequent and severe weather events. The 2024 Atlantic Hurricane season, initially forecasted to be “extremely active,” was influenced by La Niña conditions and a warm tropical Atlantic.
After a lull in August and September, activity surged in October with hurricanes Helene and Milton. The season, which runs through November 30, underscores the evolving impacts of climate change on natural disasters.
Longer-term impacts of climate change on the insurance industry are expected to include higher frequencies of heatwaves, droughts, and severe storms, which could strain energy supplies and infrastructure
Jill Dalton, managing director of Property Risk Consulting at Aon, stresses the importance of resilience planning.
“We continue to stress with our clients the need to build business continuity and resilience plans, including rebuilding in a more resilient way to make their locations less subject to physical damage from future events,” Dalton said.
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