Tropical Storm Debby unleashed prolonged rains and flooding on southeastern US states this week after making landfall as a Category 1 hurricane.
It’s the latest storm in what’s proving to be an active hurricane season for North America, adding to concerns that another massive nat cat event could drive the property insurance market back into hard conditions.
Severe thunderstorms and catastrophic flooding have already driven significant losses in the first half of the year. According to Munich Re, flooding events and two earthquakes led to global insured losses of about $60 billion in H1 2024, markedly higher than the 10-year average of $37 billion.
Despite this, the US property insurance market has been seeing softer conditions, according to one expert who spoke with Insurance Business.
“The insurance market, particularly in Florida, remains in transition,” said Ben Beazley (pictured), executive vice president of property at Jencap Group. “There are definitely areas where pricing is going down. Retentions are staying the same.
“Additionally, there is new capacity coming into the market. There is available capacity in Florida, which is probably the toughest place to find coverage. There’s plenty of capacity along the coastline of Texas, Louisiana, Mississippi, and Alabama.”
With the hurricane season set to peak in September and October, the potential of a major storm forming off the Gulf and wreaking havoc in densely populated areas remains high.
The National Oceanic and Atmospheric Administration (NOAA) predicted a likely above-normal Atlantic hurricane season for 2024, with 17-25 named storms (average is 14), 8-13 hurricanes (average is 7), and 4-7 major hurricanes (average is 3). This year’s La Niña event, or the cooling of sea-surface temperatures, could raise the likelihood of stronger storms forming in the Atlantic.
“The conditions seem to align with predictions of a more active hurricane season, threatening the US coastline,” Beazley said.
The key question, then, is how large a nat cat event would be to impact the property market, especially after insurers had seen several profitable quarters. According to Beazley, a Category 5 storm hitting a major city like Miami or Tampa, with losses between $80 billion and $100 billion, could do it.
“The risk is amplified if multiple storms hit in succession, as coverage limits are reinstated after each event,” said Beazley. “Fortunately, retention levels are holding, which is positive for the market. With reasonable construction, you’re probably not going to see much damage from a Category 1 or 2 storm. However, once we reach Category 3, 4, or 5 storms, all bets are off.”
While the property market remains relatively stable, with plenty of capacity, significant hurricane activity this year could spell a more challenging 2025 for brokers.
“If we experience bad storms, we could be thrown back into a hard market like 2023, making placements difficult. On the other hand, if there are no major storms, the market will continue to soften, and we’ll need to work hard to explore every option as existing and new markets release capacity,” said Beazley. He noted that there are new managing general agents (MGAs) and Lloyd’s syndicates opening domestically and adding fresh capacity.
The real shift, however, may come when large insurers report significant losses, triggering boardroom scrutiny and leading to tightened pricing and reduced capacity. Insurers may need to retain more risk as their treaties attach higher up the program, forcing them to take on more net exposure in catastrophic events.
Despite these potential challenges, Beazley is confident that the global market has ample capacity. Other factors could also influence the impact of a strong hurricane on the insurance market. Landfall location is a critical differentiator in terms of projected losses, for one – “Think Katrina versus a storm like Debby in a sparsely populated area.”
“The only certainty is that the market will go one way or the other. If we have storms, it’ll be a super hard market again; if not, good accounts will continue to benefit from better pricing as the year ends,” Beazley said.
“Many are behind on their budgets set in October 2023, especially after the market dropped in January, particularly in cat areas. Interestingly, while I initially thought non-cat risks would see more price cuts, we’ve actually seen good cat-area accounts benefiting. After three years of significant premium increases, it’s been easier for the market to dial back rates in these areas.”
Do you have any thoughts about how the current hurricane season could impact the property market? Please share them in the comments.
