2018 hurricane season could be average, claims Moody’s

Cooler waters and a weak El Niño could result in an average 2018 Atlantic hurricane season, according to a new report by rating agency Moody’s.

The ratings agency pointed out that leading weather organisations have published their forecasts for the 2018 Atlantic hurricane season, which officially runs from 1 June to 30 November. Overall, experts predict that this season’s storm activity will be near historical averages for the Atlantic Basin, a region covering part of the North Atlantic Ocean, the Caribbean Sea and the Gulf of Mexico.

According to the Moody’s report: “Cooler than average sea-surface temperatures (SST) across the tropical North Atlantic, strong trade winds and sea level pressures, and a neutral or weak El Niño could result in an average season this year. We believe that our rated reinsurers are entering the hurricane season with solid capital positions to withstand potential losses arising from hurricane events, despite last year’s large losses.”

However, Moody’s said that various predictive models are showing somewhat divergent results; however, depending on the time periods considered. Although 30-year historical data suggests a relatively high likelihood of either a near-normal (40 percent) or an above-normal season (35 percent), the 67-year model suggests that below-normal activity is the most likely, with a 69 percent probability, as measured by the ACE Index.

On average, the forecasts call for 13 named storms during the 2018 season, with about six of these storms becoming hurricanes, of which three could reach major hurricane status. The projected storm activity is slightly above the 1981-2010 median and the long-term average, but the projected number of hurricanes is in line with longer-term data: from 1950-2017, the average for the Atlantic Basin was 11 named storms, six hurricanes and three major hurricanes per season. However, these numbers are below the more recent 1995-2017 seasonal averages of 14 named storms, seven hurricanes and four major hurricanes. According to the NOAA, on average one or two hurricanes make landfall in the US each season.

Moody’s said that despite last year’s losses, the reinsurance industry has sufficient capital to absorb hurricane-related losses this season. Hurricanes, particularly Harvey, Irma and Maria, alongside other catastrophe events last year wiped out a number of reinsurers’ profitability for the year and drove the sector’s profitability to its lowest level since 2005.

“However, capital levels were not significantly affected, with only a few mid-tier reinsurers focused on property cat and specialty business reporting capital decreases at year-end 2017,” the report said. “In addition, a number of players discontinued share buybacks and recapitalised and upsized their alternative capital vehicles, including ILS funds and sidecars, during the last months of 2017 and the first quarter of 2018.”

Moody’s concluded that: “As a result, we believe that our rated reinsurers are well positioned to manage potential large losses from hurricanes. Following one of the most expensive catastrophe loss years on record, US property catastrophe reinsurance pricing experienced only moderate increases on loss affected accounts, suppressed by overabundant capacity and intense competition from alternative sources, which were able to reload quickly following last year’s events. According to broker JLT Re in Florida, which is one of the most hurricane exposed areas in the US, property catastrophe reinsurance rates increased by 1.2 percent on average at the 1 June 2018 renewal and remain 40 percent below 2012 levels.”

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