Analysts at Moody’s have noted that the 2021 Atlantic hurricane season activity looks set to be “well above long-term historical averages,” which could result in continued pressure on reinsurance rates.
According to forecasters, the combination of warmer than average sea surface temperatures in the tropical Atlantic Ocean and Caribbean Sea, weaker trade winds and an enhanced West African monsoon have resulted in more favourable conditions for hurricane formation and intensification this year.
Also driving forecasts of increased storm activity is the view that the current weak La Niña conditions are unlikely to transition into El Niño conditions this year.
The forecasts call for between 14 and 19 named storms during the 2021 season, with seven to 11 of these storms becoming hurricanes, of which three to five hurricanes are projected to reach major hurricane status.
This would follow active hurricane seasons in the previous five years, with at least 15 named storms in each of these years, and a record-breaking 30 named storms occurring in the hyperactive 2020 season.
Recent years have also included some of the most powerful storms on record, notably 2017 Hurricanes Irma and Maria, which played a major role in making 2017 the largest insured catastrophe loss year on record at more than $148 billion.
Given the significant price increases for lumber and other building materials in recent months, Moody’s warned that losses and loss adjustment expenses from hurricane events will be particularly impacted by demand surge related cost increases for building materials and labour this year.
In terms of what this means for reinsurers, analysts expect reinsurance pricing to continue to have positive momentum.
However, Moody’s noted that the rate of positive change appears to be moderating somewhat as the supply of reinsurance capacity from both traditional reinsurers and alternative capital providers is growing to meet demand.
“The elevated level of catastrophe losses in recent years, continued low interest rates and the threat of social inflation on loss reserve adequacy are all supportive of higher reinsurance pricing during the midyear renewals in the US this year,” Moody’s Vice President James Eck says.
“We think this strength in reinsurance pricing is likely to continue into the January 2022 renewals,” he added.