Stable Insurance Market Despite Florida Hurricanes, Aon Reports

In Aon's article, "Florida Hurricanes Not Expected To Adversely Affect Property Market," Jill Dalton, Vincent Flood, Michael Gruetzmacher, Tracy Hatlestad, and Peter Tavella examine the impact of Hurricanes Helene and Milton on the US property insurance and reinsurance markets. While initial concerns suggested the insured losses could be among the worst in US history, Aon estimates total losses between $34 billion and $54 billion. Despite this, Aon believes the market is well-prepared to absorb these losses.

Per the report, both primary insurers and reinsurers remain in a strong financial position. Industry policyholder surplus reached $1.1 trillion as of June 2024, according to Aon's analysis of S&P Global Market Intelligence data. This surplus, combined with peak global reinsurer capital levels of $695 billion in the first half of 2024, creates a buffer that allows the market to handle the significant insured losses from these storms. According to Aon, this financial strength will likely keep the market stable and prevent a return to hard market conditions in the near future.

Ms. Hatlestad, executive managing director and global property segment leader at Aon, noted that the rate increases and retention resets in the reinsurance market throughout 2023 helped prepare the industry for events like Hurricane Milton. Losses ceded to reinsurers from Milton are expected to align closely with planned industry loss ratios, thereby minimizing any destabilizing effects. These well-positioned markets, according to Aon, are a key factor in maintaining the moderating trends seen in the property market.

According to Mr. Flood, Aon's head of US property, the moderating property market is expected to persist for well-performing risks despite some challenges for clients with significant exposure in Florida and along the Gulf Coast. He pointed out that insurers remain aggressive in pricing and are expected to continue being so through the remainder of 2024 and into 2025, keeping rates flat or even slightly decreasing for some policyholders.

Reinsurance, per Aon, has experienced an 18-month period of strong performance, with reinsurers achieving a return on equity nearly double their cost of equity during 2023 and the first half of 2024. This financial strength has been passed on to the primary markets in the form of stable or reduced treaty premiums, which further support a stable insurance environment. Mr. Tavella, Aon's chief broking officer for national property broking, attributed this resilience to a combination of improved underwriting results and investment income.

However, while the short-term property market remains stable, Aon cautioned that long-term risks tied to climate change could still drive significant challenges. In July 2024, forecasters predicted an "extremely active" Atlantic hurricane season due to a combination of La Niña conditions and a warmer tropical Atlantic. Although activity slowed in August and September, Hurricanes Helene and Milton revived concerns about the long-term impacts of climate change. Aon emphasized that while the 2024 season runs through November 30, the longer-term effects of climate change—including more frequent and severe natural catastrophes—could impact market conditions over time.

According to Aon, risk managers should prioritize resilience in their hurricane-prone operations, particularly in how they rebuild and reinforce properties. Ms. Dalton, managing director of property risk consulting at Aon, advised that businesses should go beyond current building codes when retrofitting or rebuilding structures to better withstand future events. This "building code-plus" approach, while potentially expensive, can mitigate the damage from hurricanes, floods, and severe convective storms. Ms. Dalton also stressed the importance of having clear, actionable plans in place to protect employees and operations, thereby driving business continuity and resilience.

The report also highlighted the need for accurate data in managing risk exposures. Aon recommended that businesses consistently update their statements of values to reflect current property conditions and rebuilding costs, particularly as the cost of building materials rises. Accurate exposure data ensures that businesses are adequately insured for both property damage and business interruption losses, optimizing their risk transfer solutions.

In addition to traditional insurance, Aon emphasized the growing role of parametric coverage for otherwise uninsurable risks. Parametric policies provide payouts based on predefined criteria—such as a hurricane with specific wind speeds in a set geographic area—rather than on actual physical loss. Mr. Gruetzmacher, Aon's head of alternative risk transfer, explained that parametric products offer rapid access to liquidity during crises, helping businesses cover uninsured losses quickly. For example, during Hurricane Milton, a communications firm in Orlando used its parametric cover to receive a payout within 5 business days of the event, based solely on wind speeds and pressure measurements rather than having to prove physical damage to assets.

As more companies explore alternative risk transfer solutions, Aon anticipates that parametric products will continue to grow in popularity, especially in regions prone to natural disasters. Mr. Gruetzmacher noted that Aon envisions all businesses exposed to natural catastrophes integrating parametric insurance into their risk capital strategies, enabling quicker recovery after major events.