![Florida-homeowners-market-underwriting-gains-losses-lead.png](https://assets.euromoneydigital.com/dims4/default/17ed32c/2147483647/strip/true/crop/840x515+0+0/resize/840x515!/quality/90/?url=http%3A%2F%2Feuromoney-brightspot.s3.amazonaws.com%2F88%2Fa6%2F739543c64e78a604f7acf20c18ec%2Fflorida-homeowners-market-underwriting-gains-losses-lead.png)
We are already 18 days into the hurricane season, and you can sense the trepidation. We see a news story almost every other day now about the fractured state of the Florida market and how difficult it is to get coverage.
Additionally, this year’s hurricane forecasts of an above-average season fueled by La Niña has injected fear into what it means for the industry and even created some pressure on (re)insurance stocks.
Over the next few pages, we delve deeper into these issues. First, we look at the state of the Florida homeowners’ market, which has benefited from a less-than active 2023 hurricane season. Second, we look at the accuracy of forecasts by year. We view these as directional, since all that matters is where a hurricane makes landfall.
Finally, we look at stock market performance before and after a hurricane. We would note that as less of a “chickens today, feathers tomorrow” case, as Florida-dominant writers of the past have either diversified or exited altogether from this risk.
We discuss these points in detail below:
First, Florida’s homeowners’ market booked its highest underwriting gain in almost three decades last year
The chart below shows underwriting gains and losses for the Florida homeowners’ market over a 27-year period. Looking at 2023, the market experienced its highest underwriting gains in the observed time period at $6.7bn, marking a $12bn year-over-year swing. However, it should be noted that these gains are primarily attributable to a low-impact hurricane season.
According to the National Oceanic and Atmospheric Administration (NOAA), Hurricane Idalia was the only US-landfalling hurricane in 2023. It was a category 3 storm that made landfall in Florida’s Big Bend region and cost the industry a total of $3.6bn. This fell well-below the average cost of $22.8bn for hurricanes, which spared the domestic homeowners’ market another year of multi-billion dollar losses.
![Florida-homeowners-market-underwriting-gains-losses.png](https://assets.euromoneydigital.com/dims4/default/69e30c0/2147483647/strip/true/crop/1413x841+0+0/resize/800x476!/quality/90/?url=http%3A%2F%2Feuromoney-brightspot.s3.amazonaws.com%2F2c%2F3e%2Ff6dcf48c4243b8fc20afad52615e%2Fflorida-homeowners-market-underwriting-gains-losses.png)
See our appendix for exhibits on Floridian carrier policyholder surplus, and homeowners’ market share.
Forecasts call for an active hurricane season, which could result in another costly year for the Florida marketplace. However, these estimates are often off-base and do not paint a full picture. We expand upon this point below.
Second, estimates predict an above-average hurricane season, but they should be taken with a grain of salt
The chart below shows the historical accuracy of CSU and NOAA’s hurricane forecasts by comparing their estimates to the actual figures. For additional context, we have highlighted the El Niño years in light purple.
The initial forecasts for 2024 from both CSU and NOAA are on the higher end of the scale. CSU predicted 11 hurricanes, and NOAA predicts anywhere from eight to 13 hurricanes. However, we would caution against treating these estimates as gospel.
We can see that CSU and NOAA often underestimate or overestimate the number of hurricanes in any given year. Moreover, the frequency of hurricanes alone is hardly an indicator of what is to come. Where a hurricane makes landfall is key to its potential cost for the industry.
Looking back once more at 2023’s hurricane season, NOAA reported that it was actually one of the most active seasons ever recorded with 20 named storms, seven of which were hurricanes and three of which became major hurricanes.
However, Hurricane Idalia was the only one of those three major hurricanes in the Pacific to make landfall in the US. The other two major hurricanes – Hurricane Lee and Hurricane Otis – made landfall in Canada and Mexico, respectively.
![Historical-Colorado-State-University-and-NOAA-hurricane-forecasts-vs-actual.png](https://assets.euromoneydigital.com/dims4/default/0da3168/2147483647/strip/true/crop/1403x871+0+0/resize/800x497!/quality/90/?url=http%3A%2F%2Feuromoney-brightspot.s3.amazonaws.com%2Fae%2F6d%2Ff113f66c4ff68a262d79d7d8b548%2Fhistorical-colorado-state-university-and-noaa-hurricane-forecasts-vs-actual.png)
Given this, we believe that we are still in a waiting game and that only time will tell what the season has in store for the industry. What major storms develop in the Atlantic basin as well as where they make landfall will make or break this season for (re)insurers.
Third, a pre-and-post hurricane market cap analysis shows reinsurers/hybrids rebound more quickly after disasters than Floridians due to book diversification
Taking a step back, a key concern in any hurricane season is often how stocks are impacted over the short and long-run when major hurricanes do make landfall. We have previously shown how the various P&C industry sector stocks react, and felt it was worth revisiting the performance of Bermudian reinsurers/hybrid carriers as well as Floridians as we enter the season.
The chart below shows the average market cap development from 30 days before to 60 days after hurricanes, including Harvey, Irma, Maria, Michael, and Ian. We can see that reinsurers/hybrids tend to rebound significantly faster than Floridians, but this is in large part due to the former having far more diverse books now than they did 10 years ago.
Many major reinsurers/hybrids were focused on P&C in the Florida and Gulf region over a decade ago. They have since diversified their books and, as a result, we see below that their stocks are able to rebound quickly in the event of catastrophes. Floridians, whose books are geographically concentrated, tend to struggle greatly and fail to rebound within the period of time we observed.
![Average-market-cap-development-from-30-days-before-to-60-days-after-hurricanes-from-2017-2023.png](https://assets.euromoneydigital.com/dims4/default/3949078/2147483647/strip/true/crop/1238x846+0+0/resize/800x547!/quality/90/?url=http%3A%2F%2Feuromoney-brightspot.s3.amazonaws.com%2Fac%2F3b%2F8203463d4dad8897062bab8373cc%2Faverage-market-cap-development-from-30-days-before-to-60-days-after-hurricanes-from-2017-2023.png)
In summary, the Florida homeowners’ market benefitted from a moderate hurricane season in 2023 with no outsized losses. Estimates from CSU and NOAA do predict an above-average season, but these forecasts do not tell a full story and should be considered skeptically.
Lastly, a pre-and-post hurricane market capitalization analysis of both Floridians and reinsurers/hybrids shows that reinsurers/hybrids rebound more quickly after disasters than Floridians due to their book diversification.
Appendix:
![Policyholder-surplus-for-floridian carriers-in-Q1-2024-vs-year-end-2023-IIUSD-18.06.2024.png](https://assets.euromoneydigital.com/dims4/default/7baa0f8/2147483647/strip/true/crop/1412x890+0+0/resize/800x504!/quality/90/?url=http%3A%2F%2Feuromoney-brightspot.s3.amazonaws.com%2F8c%2Fac%2Fd3637be842edbac29004fcf27f6f%2Fpolicyholder-surplus-for-floridian-carriers-in-q1-2024-vs-year-end-2023-iiusd-18-06-2024.png)
![Florida-and-Gulf-top-carriers-market-share-DPW-analysis.png](https://assets.euromoneydigital.com/dims4/default/6ea5d13/2147483647/strip/true/crop/1756x741+0+0/resize/800x338!/quality/90/?url=http%3A%2F%2Feuromoney-brightspot.s3.amazonaws.com%2Fc2%2Fd8%2F5b5ccd984d91885362afaee5e040%2Fflorida-and-gulf-top-carriers-market-share-dpw-analysis.png)