The Atlantic hurricane season, which runs from June to November, peaks in September.
And this year it is meant to be one of the one of the most active seasons on record, according to the US National Oceanic and Atmospheric Administration.
But why are storms over 4,000 miles away such a concern for London? The answer is that London’s insurance market plays a crucial role in insuring against the risks associated with hurricanes, particularly in the US.
Sheila Cameron, chief executive of Lloyd’s Market Association, told City A.M. that hurricanes have been “one of the main drivers of the profitability of the London speciality insurance market” for many years.
According to Lloyd’s of London, 40 per cent of its global premiums were written in the US last year. Overall, the market reported gross written premium of £52.1bn in 2023.
“To put it simply, the insured damage caused by a large North American hurricane will make the difference between profit and loss for many insurers in the London market,” she explained.
She said that 2017 “was a particularly intense year for hurricanes”, where hurricanes Harvey, Irma and Maria each caused more than $30bn of insured losses. Harvey, Irma, and Maria, which all hit in 2017, are three of the five costliest hurricanes in US history, with a combined estimated economic cost of $265bn, according to a Lloyd’s report. The Lloyd’s market lost £2bn in 2017 compared to the £2.1bn profit it made the previous year.
While hurricanes are not unique to North America, the insured value of the loss is often much higher there than in many other locations that experience them.
Cameron pointed to the expensive hotels and leisure complexes in holiday destinations such as Florida and the Caribbean, and Texas, which is home to a number of mega oil and gas wells on land and along its coastline.
Cameron said these states are proving to be a bit of a headache for the London market. She said they were the “fastest growing in population terms in the country and more properties are being located in high-risk areas, combined with homes becoming more expensive to repair given that inflation has increased the cost of materials and labour”.
If insurers think that the risks in their portfolios become unsustainable, they might then choose to pass on some of this risk to reinsurers.
“This linked chain increases the number of insurers that will feel the impact of a major hurricane,” she added.
Preparing for disasters
Janine Powell, claims director at Lloyd’s Market Association said that “2024 is predicted to bring above average storm activity”.
Hurricane Beryl, a Category 5 hurricane, caused extensive damage in North America and the Caribbean this year.
However, the costs for the London market were “very manageable” as the storm missed the major population centres of Florida, according to Jessica Turner, MS Amlin’s head of exposure management.
“The season hasn’t yet been exceptional, largely due to high levels of Saharan air and a delay of the La Nina,” she said.
While some are reviewing their hurricane forecasts, costly disasters “can happen in any year”, which Turner said “shows how difficult seasonal forecasting is, and how difficult it is for insurers to use seasonal forecasting in a practical way”.
Image credit: National Oceanic and Atmospheric Administration (NOAA)
Powell said that advancements in AI are helping to develop more accurate hurricane forecasts, which “influences risk selection and pricing models, reducing shocks and volatility in these portfolios”.