Insured losses from hurricanes could rise in 2025, Moody’s says

Insured losses from hurricanes this year could rise because of the effects of inflation on building materials, labor, and other goods and services, according to a recent report by Moody’s Ratings.

The demand for reinsurance coverage remains robust, and more capacity is entering the market, Moody’s said.

Major forecasts call for 16 named storms, eight hurricanes, and three major hurricanes, due to influences including La Niña conditions and warmer sea temperatures. Although the expectations are for above-average activity, Moody’s said 2025 looks to be less active than last year.

According to the forecasters, current weak La Niña conditions are expected to transition to more ENSO-neutral conditions this summer. This development, combined with warmer-than-average sea surface temperatures in the Atlantic Ocean and Caribbean Sea, weaker wind shear, and the potential for higher activity from the West African Monsoon, will lead to conditions that favor the formation of tropical storms in the Atlantic Ocean.

These forecasts project that tropical storm activity this year will be above the long-term average of 13 named storms, seven hurricanes and three major hurricanes per season experienced between 1950 and 2024. The forecast level of activity is also modestly above the elevated storm activity averages observed during the 30 years between 1991 and 2020.

On average, the forecasts call for 16 named storms during the 2025 season, with eight of these storms becoming hurricanes, of which three hurricanes are projected to reach major hurricane status (Category 3, 4 or 5 hurricanes) with wind speeds greater than 111 miles per hour.

Forecasters at Colorado State University project a 51% probability that at least one major hurricane will make landfall along the US coastline this year, which is higher than the 43% probability observed between 1880 and 2020. Given the impact of inflation on goods and services over the past several years, insured losses from hurricane events could rise because of demand surge-related cost increases for building materials and labor.

Projected ACE Index implies above-normal overall storm activity

Weather forecasters evaluate the overall activity of an entire hurricane season by its accumulated cyclone energy, which measures the combined intensity of storms throughout the season based on their duration and strength. For example, the ACE produced by a short-lived tropical storm will be small, while a long-lived major hurricane will generate a high amount of ACE. On average, forecasters are projecting an ACE Index of 137 for the 2025 Atlantic hurricane season, down from 162 during the 2024 season. Relative to historical data, this projection corresponds to an “above normal” level of overall storm activity this year.

Recent storms produced high losses for insurers and reinsurers

Insurers and reinsurers have borne the financial impact of elevated levels of storm activity in recent years. In five of the past six years, there have been at least 18 named storms, including a record-breaking 30 named storms in 2020. According to Swiss Re, natural catastrophes resulted in $137 billion of insured losses during 2024, which marked the fifth consecutive year that insured natural catastrophe losses have been higher than $100 billion.

Swiss Re estimates that growing property exposures, particularly in areas vulnerable to catastrophe risk, will drive insured catastrophe losses higher by 5% to 7% annually over the long term.

Reinsurance pricing moderates with more capacity available

Pricing for property catastrophe reinsurance is drifting lower, with the Guy Carpenter US Property Catastrophe Rate-On-Line Index declining by 6.2% in January 2025 from all-time high levels reached in January 2024.

Despite the pullback in pricing, property catastrophe reinsurance remains attractively priced on a risk-adjusted basis. Although the heavy losses sustained by reinsurers from the California wildfires earlier this year could provide some support to pricing, the upcoming midyear renewals in the US are likely to see continued price decreases at higher return periods as more capacity enters the market. That said, Moody’s reports demand for reinsurance coverage remains robust and reinsurance terms and conditions generally remain firm, with primary insurers retaining more risk at lower return periods.