Nasty surprises: re/insurers digest the aftermath of Helene

On the face of it, Hurricane Helene, which made landfall as a category 4 storm in the Big Bend region of Florida on September 26, should not be a market-changing event for the re/insurance industry—in terms of insured losses alone. But there are much bigger implications for the industry to digest in its aftermath.

That is the sentiment that cedants, brokers and other industry experts offered to APCIA Today, speaking in advance of the conference in Chicago. One broker summarised: “The headline loss is not a huge deal for the industry. But the event created many unanswered questions and some very nasty surprises. And then you have the issue of where the losses fall. I know plenty of insurers are hurting over this—and have plenty of questions for their reinsurers.” 

Insured losses were estimated in the $5 to $10 billion range in the immediate aftermath of the storm. The most recent estimate, from Karen Clark & Company (KCC), suggests privately insured losses will reach $6.4 billion, although this does not include damages to boats, offshore properties, or losses to the National Flood Insurance Program (NFIP).

But this figure does not tell the full story. The first thing for the industry to digest is the extent to which, in the context of recently restructured cat programmes, the losses will remain within the retention levels of primary insurers’ excess reinsurance programmes. While losses will be shared on quota share treaties, this could be a first nasty surprise for cedants still adjusting to the realities of a hard market.

“This is the first real test of a relationship that was reset many two years ago,” another broker told APCIA Today. “They are paying more already; now they must absorb these losses. For reinsurers, it demonstrates the reset structures worked. But you have to view this in a wider context. 

“Many US insurers in particular were already reeling from unexpected severe convective storm losses. Their balance sheets are depleted for other reasons. This should make an interesting dynamic for negotiations now.”

“In contrast to a typical category 4 hurricane, most of the damage occurred far from the landfall point.” KCC

Bigger flood protection gap

Hurricane Helene highlighted another surprise: there is a larger than expected protection gap when it comes to flood risk in some areas. Economic losses from the storm range between $20 and $34 billion as of October 3. The size of that gap between these figures and insured loss estimates will shock many.

Moody’s has revealed that in certain cities in North Carolina, fewer than 1 percent of homeowners have NFIP policies, which is significantly low given the potential risk of flooding—as Hurricane Helene demonstrated. It notes that this protection gap has deeper implications.

“Flood insurance protection gaps partly stem from underestimation of flood risk despite the growing impacts of climate change, the cost of premiums, lack of awareness about the risk and outdated Federal Emergency Management Agency flood maps,” said Firas Saleh, director of project management, Moody’s. 

The ratings agency noted that such a protection gap has significant implications for disaster recovery efforts, as low-coverage communities may face slower recovery.

Saleh raised a wider issue. “Floods in North America, including those caused by hurricanes, heavy rainfall, and rapid snowmelt, are becoming increasingly common and severe due to evolving climate conditions,” he said.

Other commentators have picked up on the significance of the event in the context of the protection gap—and the complexity of the issue. A September 30 report by Guy Carpenter’s Cat Resource Center tried to explain the vast differences in initial estimates of insured versus economic loss. It said a big driver was the damage caused by flood, both coastal and inland, since private flood insurance products have minimal penetration across much of the US and wind policies predominantly exclude loss due to water. 

The report also said: “The most difficult region to assess wind vs. water loss will be in the Big Bend of Florida, where storm surge in excess of 10 feet coincided with wind gusts of major hurricane strength.” It noted that public and private flood policy take-up rates are minimal in the mountainous regions of the Southeast while in the Tampa Bay metropolitan region take-up is likely to be driven by mortgage requirements.

The climate change elephant

Saleh’s comment on the impact of climate change lifts the lid on what some describe as the elephant in the room for the industry—the exact implications of climate change. And, can the industry truly factor this into risk models? In the context of Hurricane Helene, that raises many more questions than answers.

A further Guy Carpenter report released on October 2 acknowledges this issue. “Hurricane Helene will be a historic storm in many respects, and a question naturally arises on how climate change contributed to the devastating effects of the storm,” the broker writes. 

“The effects of climate change on the hurricane threat vary by sub peril. While climate change on its own does not explain any natural catastrophe, certain effects of Hurricane Helene were likely amplified by climate change.” 

The report goes on to discuss rising sea levels and the impact on storm surge, excessive rainfall, which is increasing globally, and warming oceans, the essential energy source for hurricane development and intensification.

“That is the worry—that the implications are simply too complex to fully understand,” one source told APCIA Today. “But that should make for better discipline in the market.”

In KCC’s October 2 update, in which it offered the $6.2 billion insured loss figure, KCC noted some of the more unusual aspects of the storm. “In contrast to a typical category 4 hurricane, most of the damage occurred far from the landfall point, with higher wind damage in Georgia than Florida, more surge damage in Tampa, and the most significant inland flood damage in North Carolina,” it noted.

Hurricane Helene was the fifth hurricane and second major hurricane of the 2024 Atlantic hurricane season; it is now the strongest hurricane to make landfall in the Big Bend, surpassing Idalia which made landfall with 125mph winds in 2023. Record three-day rainfall totals were observed at locations in western North Carolina, with several locations reporting more than 20 inches of rain. 

Finally, water level records were broken at many gauge sites in western North Carolina and eastern Tennessee including along the French Broad, Pigeon, Catawba, and Swannanoa Rivers. There’s plenty for the industry to contemplate in the storm’s aftermath.

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