How big would a nat cat event be to send assets back into a strong market?

Tropical Storm Debby caused prolonged rains and flooding in the southeastern US states this week after making landfall as a Category 1 storm.

It's the latest storm in what appears to be North America's hurricane season, adding to concerns that another major nat cat event could send the local insurance market back into a tailspin.

Despite this, the US property insurance market has been seeing soft conditions, according to one expert he spoke to Insurance Business.

“The insurance market, especially in Florida, remains volatile,” said Ben Beazley (pictured), senior vice president of real estate at Jencap Group. “Of course there are places where prices are falling. Maintenance remains the same.

“In addition, there are new forces coming into the market. There is capacity available in Florida, which is probably the hardest place to find coverage. There is a lot of capacity on the coasts of Texas, Louisiana, Mississippi and Alabama.”

2024 Atlantic hurricane season – how is the real estate market?

As hurricane season reaches its peak in September and October, the potential for a major hurricane from the Gulf and major damage to populated areas remains high.

The National Oceanic and Atmospheric Administration (NOAA) predicted an above-normal Atlantic hurricane season in 2024, with 17-25 hurricanes (average 14), 8-13 hurricanes (average 7), and hurricanes 4-7 large (average is 3). This year's La Niña event, or cooling of ocean temperatures, may increase the likelihood of strong storms in the Atlantic.

“Conditions appear to be consistent with forecasts for a very active hurricane season, threatening the US coast,” Beazley said.

The important question then is how big a nat cat event will be to impact the property market, especially after insurers see more profitable areas. According to Beazley, a Category 5 hurricane that hits a major city like Miami or Tampa, with losses between $80 billion and $100 billion, can.

“The risk increases when multiple storms hit in succession, as installation restrictions are reset after each event,” Beazley said. “Fortunately, the final levels are still stable, which is good for the market. With proper construction, you probably won't see much damage from a Category 1 or 2 hurricane. However, once we reach Category 3, 4, or 5 hurricanes, all bets are off.”

What would another big cat event mean to consumers?

While the property market remains stable, with plenty of potential, significant hurricane activity this year could spell 2025's challenge for buyers.

“If we experience bad headwinds, we could be pushed back into a tough market like 2023, making placement difficult. “On the other hand, if there are no major headwinds, the market will continue to soften, and we will have to work hard to explore all options as existing and new markets release strength,” said Beazley. He noted that there are new managing general agents (MGAs) and Lloyd's syndicates opening up from within and adding new capabilities.

The real change, however, may come when major insurance companies report huge losses, causing boardroom scrutiny and leading to price tightening and reduced capacity. Insurers may need to retain more risk as their contracts attach more to the plan, forcing them to cover more in catastrophic events.

Despite these potential challenges, Beazley is convinced that the global market has a lot of potential. Other factors may also influence the impact of a hurricane on the insurance market. Landfall location is a key differentiator in terms of perceived loss, for one – “Think Katrina versus a hurricane like Debby in a sparsely populated area.”

“The only certainty is that the market will go one way or the other. If we have hurricanes, it will be a very difficult market again; otherwise, good accounts will continue to benefit from better rates as the year ends,” said Beazley.

“Many are behind on their October 2023 budget, especially after the market went down in January, especially in cat areas. Interestingly, while I initially thought non-cat risk would see more price cuts, we actually saw some good local accounts benefit. After three years of large premium increases, it has been easy for the market to recover prices in these areas. “

Do you have any thoughts on how the current hurricane season could impact the real estate market? Please share them in the comments.