Insured losses from Hurricane Henri are expected to be modest but insurers are likely to face increased frequency and severity of storms, according to analysts.
Hurricane Henri, which made landfall as a tropical storm in Rhode Island on 22 August, is expected to cost insurers $155m, according to Karen Clark & Co (KCC). Henri, which weakened before landfall, was the third hurricane of the 2021 Atlantic hurricane season and the first named storm to make landfall in Rhode Island since Hurricane Bob in 1991.
Losses from Hurricane Henri were lower than originally feared as the storm was downgraded to a tropical storm and narrowly missed densely populated New York. According to KCC, Henri’s decrease in intensity before landfall allowed the northeastern US to avoid much of the damage that was originally forecast for the region. The shift in direction, which took Henri through Connecticut and into New York, led to reduced impacts in Massachusetts, as the strongest winds did not reach Boston or Cape Cod, the catastrophe modelling firm said.
While losses from Hurricane Henri will not trouble insurers and reinsurers, the trend of increased hurricane landfall will challenge the risk management of property insurers going forward, according to Kroll Bond Rating Agency (KBRA). KBRA expects Hurricane Henri will be a “relatively minor loss event” for the insurance industry. However, insurers that have increased their catastrophe retentions will have earnings declines and experience surplus erosion.
The average number of named storms, hurricanes, and major hurricanes has continued to increase, according to the analyst. The new 30-year average is more than 40% higher for named storms and 60% higher for major hurricanes than the 30-year average from 1971 to 2000. Tropical cyclone activity during the last five years has witnessed a similar trend, it said.
The 2020 Atlantic hurricane season saw a record-breaking 30 named storms, including 13 hurricanes and six major hurricanes. The number of named storms exhausted the 21 annual pre-designated list of names, with the last nine named storms designated with Greek letters. This was only the second time in history that the Greek alphabet was used. “Of the 30 named storms in 2020, a record 12 made landfall in the US. This trend has continued into 2021, as five of the first eight named storms have made landfall in the US, and six named storms have made landfall in the Americas,” KBRA said.
This year is also on course to be another active season. The Colorado State University (CSU) predicted that 2021 will be the sixth consecutive year of above-average activity. As the 2021 hurricane season nears its peak, named storms are on track to outpace the historical average. CSU’s latest forecast predicts 18 named storms, while other forecasts range between 20 and 25. A scenario in which there are 20 named storms would rank 2021 in the top-three most-active hurricane seasons of all time, following 2020 and 2005, KBRA said.
Climate change is also likely to influence future hurricane activity, according to KBRA. The impact of hurricane intensity and impacts is also likely to increase, with climate change-induced warmer ocean temperatures and higher sea levels. “While there are differing views within the scientific community as to whether climate change is helping to generate increased frequency of hurricanes, there is general consensus that climate change has contributed to greater storm severity,” the analyst said.
According to KBRA, the P&C insurance industry has “sufficient” capital to absorb catastrophes similar to those of the past five years, even in combination with a moderate investment downturn. However, elevated catastrophe activity during the past five years has steadily driven reinsurance pricing higher and some insurers with unfavourable loss experience have restructured their reinsurance programmes to manage sharply rising costs. In some cases, retentions were increased, while total limits were reduced.
“If the recent pattern of active hurricane seasons has ushered in a new reality of natural catastrophes, P&C insurers (especially smaller regional companies) will need to redouble their focus on underwriting profitability and risk management to protect their financial strength,” KBRA said.
The analyst also noted that uninsured losses from hurricanes were increasing. “Due to the significant increase in population, properties and property values in coastal areas, exposure to flooding (which is often uninsured) is rising – which is likely to drive up flood losses, even in the absence of more frequent and/or more severe flooding events,” KBRA said.
“Although industry insured loss estimates from Hurricane Henri are likely to be minimal, it is likely that individual homeowners will experience significant uninsured losses from Hurricane Henri, which produced dangerous storm surges and heavy rainfall in parts of Long Island, New Jersey, Connecticut, Massachusetts and Rhode Island,” it added.