North Atlantic hurricane activity in a warmer climate: implications for property catastrophe reinsurance

North Atlantic hurricanes are one of the weather-related perils that most severely impact insured properties along the US East Coast, and thus represent a key exposure for most reinsurance and insurance-linked security (ILS) portfolios. The hurricane models traditionally used to quantify re/insurance risk account for the effect of fundamental climate circulation features, such as the El Niño Southern Oscillation (ENSO) and the Atlantic Multidecadal Oscillation (AMO). However, the longer-term impact of global warming on hurricane-exposed reinsurance portfolios is still largely unknown. Here, we leverage recent scientific insights and historical records to explore the potential link between global warming and hurricane insured losses. Historical records suggest that the annual frequency of North Atlantic hurricanes does have a material impact on industry losses (rank correlation coefficient ~0.4). However, both models and historical trends seem to indicate no change, or even a slight decrease, in North Atlantic hurricane frequencies in a warmer climate. We also find that a potential increase in the proportion of hurricanes that reach major intensities, expected to be of the order of 10-20% according to the 2021 IPCC report, might lead to a 5-10% increase in industry losses. A similar increase in industry losses might also result from the higher hurricane precipitation rates, which are projected to increase by 11- 28% according to the 2021 IPCC report.  This suggests that the impact of global warming on hurricane insured losses may be significant, albeit not as critical as other fundamental loss drivers, such as urban development, demographic growth, as well as economic and social inflation.