Florida Hurricanes Not Expected to Adversely Affect Property Market

Florida Hurricanes Not Expected to Adversely Affect Property Market
Property Risk Management

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This insight is part 01 of 08 in this Collection.

Weather

01 of 12

This insight is part 01 of 12 in this Collection.

October 30, 2024 8 mins

Florida Hurricanes Not Expected to Adversely Affect Property Market

Florida Hurricanes Not Expected to Adversely Affect Property Market

Hurricanes Helene and Milton insured loss estimates are expected to fall between $34 billion and $54 billion. Healthy, well-capitalized insurance and reinsurance markets are positioned to absorb those losses.

Key Takeaways
  1. Primary insurance and reinsurance markets are well-positioned to accommodate losses from hurricanes Helene and Milton.
  2. As a result, the moderating property insurance market is expected to continue, at least in the short term into 2025.
  3. Climate change still threatens to increase frequency and severity of natural catastrophes. Building resilience should be a primary goal of risk managers with cat-prone occupancies.

When hurricanes Helene and Milton struck the Florida Gulf Coast 13 days apart, their combined insured loss estimates threatened to be among the worst in U.S. history, ultimately altering the U.S. commercial property insurance market.

Insured losses, however, were less than expected — estimated to fall between $34 billion and $54 billion, according to Aon’s Reinsurance estimates. The short-term prospect of a return to harder market conditions is unlikely, and the 2025 renewal environment is expected to remain stable.

“As a result of rate increases and retention resets in the reinsurance market in 2023, ceded losses to reinsurers from Milton are expected to produce industry loss ratios near their planned levels,” says Tracy Hatlestad, executive managing director and global property segment leader with Aon’s Reinsurance Solutions.

Well-capitalized primary and reinsurance markets are positioned to absorb losses from both events:

  • Total direct industry policyholder surplus stood at $1.1 trillion, as of June 30, 2024, according to Aon analysis of S&P Global Market Intelligence data. Aon expects the primary property market to continue to moderate for the balance of 2024 and into 2025.
  • Peak global reinsurer capital levels of $695 billion reached in H1 2024. As a result, reinsurance losses from both events will be manageable. Further, metrics point to a stable reinsurance market into 2025.

“Clients with heavy Florida and Gulf Coast exposure concentrations may be slightly more challenged, however, we expect the moderating property market to continue, especially for well-performing risks,” says Vincent Flood, head of U.S. Property with Aon. “We believe markets will continue to be aggressive through the remainder of 2024 and into 2025.”

Reinsurers are amid 18 months of strong performance, with a return on equity nearly double the average cost of equity in 2023 and H1 2024. That strength is typically passed to the primary markets in lower reinsurance treaty premiums.

Global Reinsurance Return on Equity

Florida Hurricanes Not Expected to Adversely Affect Property Market Graph 1

Global Reinsurer Capital

Florida Hurricanes Not Expected to Adversely Affect Property Market Graph 2

“We’ve seen such a strong rebound in reinsurance capital and policyholder surplus,” says Peter Tavella, chief broking officer for National Property Broking at Aon. “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.”

Climate Change-Driven Catastrophes will Drive Longer-Term Market Conditions

In July 2024, hurricane forecasters confidently predicted an “extremely active” 2024 Atlantic Hurricane season, with above-normal confidence. They cited a transition to La Niña conditions in the Pacific, coupled with a warmer tropical Atlantic — a combination that would stoke a “hyperactive season.”1 However, a variety of factors led to an unexpected lull in the season in August and September until activity picked up with Helene and Milton in October.2

The 2024 season runs through November 30. The impact of climate change will continue to manifest the potential for more frequent and severe named storms, with effects varying in the longer term. Examples include:

  • Higher heatwave and drought frequency and severity
  • Strained energy supplies and control systems
  • Intense rainfall and sea level rise contributing to more flooding
  • Changing patterns in severe convective storms, which can damage buildings and disrupt businesses

“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,” says Jill Dalton, managing director of Property Risk Consulting with Aon.

How to Build Resilience and Mitigate Future Hurricane Risk

In the face of growing windstorm risk, risk managers with hurricane-prone exposures must commit to protecting their operations. They should have clear and actionable plans in place before a hurricane occurs to protect employees, operations, minimize property damage and drive operational resilience.

Consider these three steps and recommendations as you prepare for future resilience:

  1. Rebuild and Reinforce with Resilience in Mind: Retrofitting or fortifying existing assets to withstand property perils can be expensive. In many cases, though, it’s worth the investment. For instance, constructing an edifice to a “building code-plus” standard — that is, beyond what the current building code requires — can be a difficult capital decision. With the right data and risk quantification, however, property owners can make informed decisions about risk mitigation for various perils, including flood and severe convective storms.

    A good place to start is “inside the fence” at a given property location. Then consider the impact of climate risk on the wider area and region.
  2. Use Data to Deliver Updated Risk Exposures: As organizations rebuild and reinforce their hurricane-prone occupancies, it is vital that they provide their underwriters with updated exposure data (statement of values) to ensure that accurate replacement cost property values are obtained when locations are modeled for natural catastrophes. Doing so not only helps achieve proper recovery in the event of a loss, but it also helps optimize your risk transfer solution purchase as well.

    Similarly, businesses need concise analysis of the critical functions and operations contributing to their revenue streams for accurate assessments of potential business interruption exposures.

    Regardless of the size or scope of your operations, you should make sure your property and business interruption values are accurate and current to distinguish replacement values from market values for your physical assets. Given the rising costs of building materials, annual updates, including the market costs for materials, should be considered.
  3. Complement Property Portfolio with Parametric: While hurricanes Helene and Milton caused an estimated $34 billion to $54 billion in insured losses, total economic losses — those losses not covered by insurance — will be significantly higher.

    Parametric insurance provides critical response by insuring otherwise uninsurable “grey swan” exposures with difficult-to-quantify economic impact and provide rapid access to liquidity at a time of crisis.

    Unlike traditional insurance, the trigger for parametric cover comprises predetermined third-party parameters — such as a named hurricane with a particular wind speed within a set geography — rather than physical loss to an owned asset as with conventional cover.

    Instead of struggling to quantify the economic impact, parametric providers can objectively assess the risk at any given geography and attach capital to that risk to offset uninsured losses. Advancements in data and analytics have allowed clients to obtain cover for more perils with greater precision than ever before.

    “We’ve seen an increased take-up in alternative risk transfer solutions like parametric products, and events like we have experienced in Florida will only increase that trend,” says Flood.

    During Milton, a large communications firm’s parametric cover was put to use in Orlando, where high wind speeds and low central pressure triggered a rapid payout, with the hitting the firm’s account within a week of the event. These proceeds can then be used for any loss the firm suffered.

    “In five business days, we have gone from event to payout in the hands of the insured,” says Michael Gruetzmacher, head of Alternative Risk Transfer at Aon. “Our vision is that all nat cat and weather-exposed businesses have this as part of their risk capital stack.”

Learn more about catastrophe preparedness and response readiness at the Aon Hurricane and Natural Catastrophe Planning and Response Site. This offers valuable resources designed to support an organization against the potential impacts of natural disasters.

$54B

Estimated combined insured losses could reach this amount.

Source: Aon Reinsurance

Aon’s Thought Leaders
  • Jill Dalton
    Managing Director of Property Risk Consulting, North America
  • Vincent Flood
    Head of U.S. Property, North America
  • Michael Gruetzmacher
    Head of Alternative Risk Transfer and Innovation, North America
  • Tracy Hatlestad
    Executive Managing Director and Global Property Segment Leader, Aon Reinsurance
  • Peter Tavella
    Chief Broking Officer, National Property Broking, North America

1 Build Resilience for an Extremely Active Atlantic Hurricane Season | Aon
2 Hurricane Season Surprisingly Quiet – What Happened to all the Storms? | Forbes

General Disclaimer

This document is not intended to address any specific situation or to provide legal, regulatory, financial, or other advice. While care has been taken in the production of this document, Aon does not warrant, represent or guarantee the accuracy, adequacy, completeness or fitness for any purpose of the document or any part of it and can accept no liability for any loss incurred in any way by any person who may rely on it. Any recipient shall be responsible for the use to which it puts this document. This document has been compiled using information available to us up to its date of publication and is subject to any qualifications made in the document.

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