Swiss Re warns that inflation will impact hurricane-related losses as active storm season looms

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Insured losses from hurricane events – which are expected during what is predicted to be a very active 2024 Atlantic Hurricane season – will be particularly impacted by demand surge related cost increases for building materials and labour, according to Swiss Re.

Hurricane EtaThis result is predicted mainly due to the impact of inflation on goods and services seen over the past couple of years.

Nine weather research organisations have released estimated hurricane activity projections for this year’s hurricane season, which runs from June 1 to November 30.

They forecast 22 named storms with 11 of these becoming hurricanes, of which five are projected to reach major hurricane status (Category 3, 4 or 5 hurricanes).

In recent years, insurers and reinsurers have seen above average catastrophe losses. In 2023, nat cats resulted in $108bn of insured losses, which marked the fourth consecutive year that insured nat cat losses have been higher than $100bn, according to Swiss Re data.

The majority of insured catastrophe losses last year arose from severe convective storms, which analysts highlight, had a disproportionate impact on primary insurers.

Looking ahead, Swiss Re estimates that growing property exposures, particularly in areas vulnerable to catastrophe risk, will continue to drive annual insured catastrophe losses higher by 5% to 7% annually over the long term.

Additionally, given the impact of inflation on goods and services over the past couple of years, insured losses from hurricane events will be particularly impacted by demand surge related cost increases for building materials and labour, Swiss Re also stated.

Moreover, the reinsurer’s report found that primary insurers are retaining more risk as attachment points have moved higher.

Analyst said: “During the 2023 reinsurance renewals, reinsurers were able to secure more favourable terms and conditions for their coverages and largely avoided providing aggregate coverages.

“The higher attachment points for ceding companies effectively shifted more of the loss burden for small to mid-sized catastrophe events back to the primary insurers. This year, these structural enhancements have generally been maintained.”

The report also noted that, as more capacity enters the market, reinsurance pricing is moderating: “ Although US property cat pricing reached an all-time high according to Guy Carpenter’s US Property Catastrophe Rate-On-Line Index at 1 January 2024, price momentum is waning and midyear renewals in the US may see moderate price decreases at higher return periods as more capacity enters the market.

Concluding: “That said, demand for reinsurance coverage remains robust and reinsurance terms and conditions generally remain firm, with primary insurers retaining more risk at lower return periods.”

The post Swiss Re warns that inflation will impact hurricane-related losses as active storm season looms appeared first on ReinsuranceNe.ws.

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