Expectations for 2024’s hurricane season
It’s likely to be a whopper of a storm season. And it might be time to rethink building everything along the coastline.
That’s the short take from Moody’s Analytics commentary on the 2024 North Atlantic hurricane season, which notes the storms have led to US$275 billion in insured losses since 2017.
“Event losses are escalating due to population increases in coastal areas, social inflation, construction inflation, and regulatory mandates,” says Julie Serakos, managing director of insurance at Moody’s.
Adds Adam Kamins, a senior regional economist with Moody’s: “With few signs of a slowdown in building in high-risk coastal areas, a major storm would have significant consequences, not only in terms of the human toll but when it comes to lost output and property damage.”
What’s in store?
Forecasts for the season are dire, with the U.S. National Oceanographic and Atmospheric Administration calling for 17 to 24 total named storms, eight to 13 hurricanes and four to seven major hurricanes.
That’s far higher than the historical average of 14 named storms yearly between 1991 and 2020, notes James Eck, Moody’s vice president-senior credit officer for financial institutions. He adds reinsurers are well-positioned for this year’s season, with strong capital.
“Property catastrophe pricing remains high, although more competition is entering the market, particularly at the top end of reinsurance programs,” Eck says. “Reinsurance terms and conditions generally remain firm, with primary insurers retaining more risk at lower return periods.”
Earlier this month, researchers at Colorado State University called for an ‘extremely active’ 2024 season, with 11 hurricanes and five potentially major storms (category 3 to 5 with sustained winds of 180 km/h or higher).
A rough storm season would be poorly timed for commercial real estate companies, which are dealing with insurance affordability and availability issues, says Natalie Ambrosio Preudhomme, associate director of commercial real estate at Moody’s.
“Exposure to a strong storm could affect ongoing conversations around risk appetite and alternative risk transfer for lenders and borrowers,” she says. “Meanwhile, every passing hurricane season informs our broader understanding of the shifting long-term viability of coastal real estate markets, painting a more detailed picture of risk, resilience, recovery, asset value and insurability in areas exposed to hurricanes.”
Supply chain problems
All of this is bad news for Canada’s Atlantic provinces, where persistent inflation in the years following Fiona are dragging out some adjustment periods.
“That is a direct result of managing the claims over those two years,” Michael Galea, Sedgwick’s senior vice president for national operations in Canada told CU in early April. “Insureds are less likely to cash out because of rising prices, and therefore we keep the file [open] until the contractor completes the work.”
Inflation is also impacting end costs for repairs in the region. “Contractors are the ones conducting the restorations. They are typically paid when the work is completed to account for any price increases,” he says. Shortages of both labour and construction materials also contributed to delays in closing those files, Galea added.
This year, the hurricane season will stress supply chains already coping with ongoing risks, says Moody’s senior director for supply chain strategy, John Donigian.
“Port and airport closures, damage to key infrastructure, and clogged highways resulting from evacuations can slow logistics and impede the flow of goods. Facilities located in a hurricane path can suffer production halts and inventory losses,” he says. “Supply chain expenses can also be affected if a spike in insurance claims leads to increased premiums for businesses, or a scarcity of goods causes costs to rise.”
Feature image by iStock.com/undrey
