While June 1 renewals were challenging, capacity ultimately came together to meet cedents’ needs and the market continued to function well. Similar outcomes are expected at July 1, and looking further ahead to January 1, 2021. The reinsurance sector has shown itself to be well versed at navigating market-changing events, and the overriding message following June 1 renewals is that the market remains well positioned to support insurers through the current period of uncertainty and volatility.
Loss activity will be a critical factor for the remainder of 2020. With the sector already facing elevated claims, another major event could push losses to unprecedented levels. Current hurricane predictions indicate elevated storm activity in the North Atlantic basin. These include a forecast from the National Oceanic and Atmospheric Administration (NOAA) Climate Prediction Center of six to 10 hurricanes and three to six major hurricanes, compared to averages of six and two, respectively.
Factors in play include sea-surface temperatures trending above normal in the Gulf and Atlantic Main Development Region. Additionally, the NOAA Climate Prediction Center is forecasting neutral to possibly weak La Niña conditions for the 2020 season. These two factors alone show the potential for a comparatively higher number of storms or hurricanes in the Atlantic basin for 2020. Indeed, activity has been elevated so far, with three named storms having developed by early June.
Landfalls are, of course, the key determinant of potential loss, and they depend on surrounding weather systems in play at the time of a hurricane. The resulting steering currents are not predictable with meaningful skill beyond a seven to 10 day timeframe. For the Continental United States, the long-term ratio of landfalls to basin counts is around 23 percent. This ratio nevertheless varies between 0 to 86 percent on an annual basis, with considerable volatility from year to year.