Early forecasts for the 2014 hurricane season indicate that moderate El Nino conditions are likely to persist throughout the year, according to Fitch Ratings' annual Hurricane Outlook. This could inhibit tropical storm formation in the North Atlantic basin and decrease the probability of a major loss-inducing storm impacting the insurance industry.
Fitch estimates that given the current substantial level of industry capitalization, it would likely take a record individual storm loss or a series of significant losses equal to 15% or more of industry aggregate surplus for consideration of a property/casualty sector outlook movement to negative tied to catastrophe experience.
"From the perspective of the insurance industry, the intensity and location of storms making landfall are the most critical variables," says Christopher Grimes, director. "While fewer and less severe storms bode well for the industry, the property/casualty segment remains positioned to withstand the impact of future significant events."
The capital markets remain a strong and growing presence in the market for underwriting and offering protection from catastrophe risks. The continued low interest rate environment, along with the desire of (re)insurance companies to utilize alternatives to the traditional insurance risk transfer market, has generated significant growth in new capital from third-party investors. The process of insuring higher catastrophe-exposed areas, including Florida, continues to evolve as insurers of high-risk property expand their use of insurance linked securities (ILS).
This is the ninth edition of Fitch's annual hurricane season desk reference, providing analysis on the potential effects of a major storm season on large insurance companies and the industry as a whole. The report also compares forecasts for the 2014 hurricane season from several market experts, including National Oceanic and Atmospheric Administration(NOAA), Colorado State University(CSU) and Tropical Storm Research(TSR).
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