Reinsurers to hold firm on T&Cs following back-to-back hurricanes: Moody’s

A new report from Moody’s has noted that the large losses incurred from Hurricanes Helene and Milton will provide support for the stabilisation of property catastrophe reinsurance pricing going into the January 2025 renewals.

“Earlier this year, it appeared that reinsurance pricing momentum had stalled as pricing for higher attaching layers declined by 5% to 10% during the 2024 midyear renewals in the US,” Moody’s explained.

Now though, Given the continued elevated level of insured catastrophe losses driven by back-to-back hurricanes, 2025 pricing is reportedly unlikely to retreat.

For those unaware, Milton made landfall on 9 October as a Category 3 storm with maximum sustained winds of 120 miles per hour near Siesta Key, Florida.

Milton brought damaging hurricane-force winds to a large portion of central Florida as it crossed over the peninsula before exiting the state back into the Atlantic Ocean as a Category 1 hurricane.

“The storm followed just two weeks after Hurricane Helene, which will complicate the claims adjustment process as there is some overlap in the footprints of the two storms,” Moody’s report said.

Moody’s RMS estimates put Milton’s losses in the $22-$36-billion range, with a best estimate of $26 billion. That includes losses from wind, storm surge and precipitation-induced flooding.

Meanwhile, KCC puts the loss at close to $36 billion for damage to residential, commercial and industrial properties and automobiles, as well as business interruption, but not including damage to boats, offshore properties, or National Flood Insurance Protection scheme claims.

CoreLogic’s estimate is lower at $17-$28 billion and Verisk expects industry losses to be in the €30- €50 billion range.

As per Moody’s, a significant portion of losses arising from this event will be ceded to the reinsurance sector.

“Reinsurers’ losses related to Hurricanes Helene and Milton will depend on the underlying primary insurance coverages and the structure and terms of the reinsurance contracts,” Moody’s added.

Adding more on the implications of these events on the reinsurance sector, Moody’s noted, “Although reinsurers price catastrophe-exposed coverages to account for the volatility inherent in the business, we think the continued elevated level of insured catastrophe losses globally will provide support for the stabilization of property catastrophe reinsurance pricing going into the January 2025 renewals.”

“We expect reinsurers to maintain underwriting discipline by continuing to hold firm on terms and conditions in 2025. This includes setting attachment points high enough to avoid frequency events and limitations on providing aggregate reinsurance coverages.”

Moody’s concluded, “Hurricanes Helene and Milton are the first large hurricane events that will test the efficacy of Florida’s legal reform efforts to reduce litigation costs that have plagued the state’s insurance market, resulting in the highest direct defense cost ratio historically in the US. The legislation eliminated “one-way attorney fees,” as well as the assignment of insurance benefits to third parties.

“Barring significant large catastrophe events during the remainder of 2024, we think annual catastrophe losses should be within catastrophe loss budgets of most reinsurers. However, full-year 2024 results won’t be as good as last year’s for most companies.”

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