Insurance Industry Faces Challenges as Atlantic Hurricane Season Begins

The rising threat of natural disasters, climate change, socioeconomics, and other related risks continues to drive the need for better research and forecasting. A recent Gallagher survey of 1,000 business owners found that 91% identified specific weather or natural hazards as risks to their business. 85% were at least somewhat concerned about the impact of climate change or natural disasters on their business in the next 12 months.

This context highlights the need for clear communication — not only to explain uncertainty but also to set appropriate expectations for how businesses and the public should prepare for natural disaster risks, according to Gallagher Re’s report about Natural Catastrophe and Climate. Beinsure Media selected the most important highlights from the report.

There has been significant attention on the 2024 Atlantic hurricane season, leading to growing expectations of a very active season.

While weather forecasting is never certain, current atmospheric and oceanic conditions suggest a highly favorable setup for strong storm development through November. Early season activity has already raised concerns.

Whether this will be a challenging season for the insurance industry is still uncertain, but the potential is there. The following sections will explore the factors driving this hurricane season and examine if historical analog years can offer any insights.

We will provide an update on the Florida insurance market after the June 1 reinsurance renewal cycle and look at tropical cyclone expectations outside of the Atlantic.

The forecasts for an elevated Atlantic hurricane season have come at a time when the overall US insurance market is grappling with capacity, availability, and affordability challenges across many parts of the country.

The state of Florida, which has been a central point of focus for the US insurance market, had experienced three consecutive years of double-digit premium growth heading into 2024.

Risk-adjusted rates on most programs were either flat or down by as much as 10%. However, market softening primarily occurred early in the renewal cycle as reinsurers were more eager to increase their capacity.

This started to change as the calendar got closer to June 1 and more ominous Atlantic hurricane season forecasts were released by NOAA, CSU, and other agencies.

Atlantic 2024: Seasonal Background Information

The 2024 Atlantic hurricane season officially began on June 1, and has already been active and consequential.

Three storms had developed as of this publication, and all three made landfall (Alberto/Mexico; Beryl/Grenada, Mexico and the US; Chris/Mexico)

Beryl rewrote much of the early season Atlantic Ocean record book by becoming the strongest hurricane ever recorded prior to August 1. It reached Category 5 intensity with 165 mph (265 kph) winds on July 2 (UTC). Climatology (1991–2020 average) says

the first hurricane should arrive on August 14 and the first major hurricane on August 31. Beryl was formed before the end of June.

All major forecast agencies expect a very active year. In May, the National Oceanic and Atmospheric Administration predicted the highest number of named storms since they began seasonal forecasts in 1999, with an 85% chance of above-normal activity.

Colorado State University, in collaboration with the Gallagher Research Centre’s Tropical Cyclone Consortium, also predicted well above average activity in their July update: 25 named storms, 12 hurricanes, and 6 major hurricanes.

Current Atlantic climatology shows 14 named storms, 7 hurricanes, and 3 major hurricanes.

An active season may increase the chances of more landfalls and higher losses, but it is not guaranteed. Active seasons do not always lead to higher losses. Steering currents, which guide storm paths, depend on atmospheric variables that can change weekly. Losses also depend on where a storm lands.

Atlantic seasons with the most hurricanes

Atlantic seasons with the most major hurricanes

The two tables below show Atlantic hurricane seasons since 1851 with the most hurricanes and the most major hurricanes. The years are color-coded by ENSO phase: La Niña, Neutral, El Niño.

One storm making landfall in a highly exposed region can result in significant costs for the reinsurance market. Even small track deviations can drastically change loss potential. Each hurricane is unique in size, intensity, track, and behavior.

The primary drivers of the 2024 season are record warm waters in the Atlantic’s main development region and an expected shift to La Niña by peak season (August to October).

In late June and early July, MDR ocean temperatures matched the average temperatures usually seen in mid-September. La Niña, characterized by cooler waters in the equatorial Pacific Ocean, reduces wind shear in the tropical Atlantic, which helps cyclones develop and intensify. By mid-June, NOAA announced a shift to ENSO-neutral conditions.

Leveraging Historical Analog Years for Seasonal Weather Predictions

One of the standard methods of trying to identify emerging trends in upcoming hurricane seasons is to seek clues from historical seasons with similar global oceanic or atmospheric patterns. Any such seasons that do reveal similar environmental conditions are referred to as historical “analog” years.

For the 2024 season, researchers at CSU selected the following years: 1886, 1926, 1933, 1995, 2005, 2010, and 2020. These are years that showcased similar conditions in the month of June and early July as those currently seen in 2024.

CSU noted that they had some challenges in selecting specific historical analogs because we have never observed Atlantic Ocean waters to be this warm in the official era of record keeping in May and June, nor during a period while exiting out of an El Niño. Both 2023 and 2024 have featured historically warm Atlantic Ocean waters in the MDR despite the Pacific Ocean being in an El Niño.

This is highly anomalous, since an El Niño usually features cooler Atlantic sea surface temperatures. These developments are likely to be studied closely in academic circles in the coming years.

The analog years selected by CSU are marked by several seasons that featured significantly above average hurricane activity that also resulted in consequential major hurricane landfalls in the United States.

Hurricane Beryl reached Category 5

Hurricane Beryl’s record-setting start to the 2024 season raises legitimate questions on whether there are any statistical data points to give clues to the rest of the season.

The fact that Hurricane Beryl reached Category 5 intensity at such an early start of the season, which beat the previous early calendar year record by roughly two weeks (Emily: July 17, 2005), is another indication that the highly anomalous warming in the tropical Atlantic has established environmental conditions that are ripe for more bouts of rapid intensification.

Beryl became the first storm to undergo strengthening of at least 65 mph (110 kph) winds in a 24-hour period in the month of June.

The 12 seasons that are treated as analog years for this specific analysis include some of the most prolific seasons on record from a storm total, US landfall, and historical loss perspective

The only other storm in NOAA’s HURDAT2 historical record to achieve this feat prior to August 1 was Hurricane Bertha in July 2008. This underlines the rarity of Beryl’s early season behavior.

As repeatedly stated, the environmental conditions are extremely favorable for seasonal development.

Final Comments on the 2024 Atlantic Season

There are few years, if any, in the historical record that have featured environmental conditions as favorable to hurricane formation as those that are currently present in the Atlantic Ocean.

With an already early and active start to the season, this may result in an extremely busy Q3/Q4 for the peril. It cannot be emphasized enough, however, that a higher number of hurricanes or major hurricanes does not automatically mean higher insured losses. While it is true that a higher frequency of events does bring a higher probability of landfall occurrence, nothing is guaranteed.

CSU has identified a 57% probability of a major hurricane striking the US mainland, which is above the historical probability rate of 43%

With that said, the insurance market should be paying very close attention. The historical analog years highlighted by CSU in this report do include seasons (1933, 2005, 2020) that were either meteorologically historic and/or quite impactful for the industry.

Where the 2024 storms eventually track is the most important point of focus. As the oceans are fueled by further climate change influence, more of these types of active seasons are likely in the future.

……………….

AUTHORS: Steve Bowen – Chief Science Officer at Gallagher Re, Brian Kerschner – Western Hemisphere Meteorologist at Gallagher Re, Jin Zheng Ng – Eastern Hemisphere Meteorologist at Gallagher Re