By Niket Nishant, Ashitha Shivaprasad and Manya Saini
July 27 (Reuters) - For insurers, the periodic El Niño climate phenomenon has traditionally lowered the risk of costly Atlantic hurricanes, but decades of population growth along coastal areas and rising property values are forcing them to rethink that assumption.
Marked by warmer-than-average sea surface temperatures in parts of the Pacific Ocean, El Niño typically suppresses Atlantic hurricanes by creating atmospheric conditions that make it harder
for storms to form.
U.S. government scientists said El Niño arrived in June, which was also the start of the Atlantic hurricane season. They expect a below-average season in 2026 of eight to 14 named storms and one to three major hurricanes.
While historically that would be good news for property insurers, which in recent years have faced an average of $30 billion in insured losses each season, that is less and less the case, said insurance brokers, catastrophe modelers and analysts.
Decades of development along U.S. coastlines have dramatically increased the amount of property exposed to hurricanes, with the population of coastal counties rising by more than 40 million since 1970, federal data shows.
Combined with higher home values and reconstruction costs, both of which have risen more than 70% and 60%, respectively, over the past decade, that coastal expansion means that even a relatively quiet hurricane season can produce severe losses.
As a result, insurers are rethinking how they assess and price catastrophe risk, focusing less on the number of storms and more on where they make landfall and the value of property in their path, executives said.
"All it takes is one landfalling hurricane to create an insured loss of a magnitude we've never seen before ... And that could absolutely happen in an El Niño year," said Kimberly Roberts, advisory leader of North American peril at reinsurance broker Guy Carpenter.
WHERE STORMS HIT MATTERS MOST
A hurricane season generates on average 14 named storms, including seven hurricanes, of which three are major, according to government data, with annual insured losses averaging around $30 billion between 2016 and 2024, according to data from Aon.
Insured losses across El Niño cycles, which occur every two to seven years, are not directly comparable because the phenomenon has no set calendar period, lasting anywhere from nine to 15 months.
Since 1950, El Niño cycles have on average produced about two fewer named storms, according to Jeffrey Strong, senior scientist for tropical cyclone modeling at insurance data firm Verisk.
But those numbers mask the true risks. The 1992 season, which came on the tail end of the 1991 El Niño, for example, generated roughly half the average number of storms and hurricanes, but among them was Hurricane Andrew, one of the strongest storms ever to hit the United States, making landfall in South Florida and again in Louisiana.
Andrew alone was so devastating that it would cost the insurance industry nearly $100 billion if it struck today, according to the Swiss Re Institute.
In contrast, the record season of 2020, a non-El Niño year with 30 named storms, 14 hurricanes and seven major hurricanes, generated around $30 billion of insurance losses, mostly because they did not hit populous areas, the Institute said.
Today, a major hurricane strike on Miami or Tampa, Florida; or on Houston — all dense, high-value metropolitan areas — could cause insured losses exceeding $100 billion, catastrophe risk modeling firm Karen Clark & Company said in a report this month.
"Hurricanes are like real estate: the three most important things are location, location, location," it added.
INSURERS BUILDING MORE SOPHISTICATED MODELS
El Niño is also associated with above-average rainfall across parts of the southern United States, increasing the likelihood of flooding, landslides and related damage — an adjacent risk insurers also have to increasingly consider.
"We're seeing higher insured values, more concentration in coastal areas, and more complex supply chains. That means the severity of a single event today can be materially higher than what we saw even a decade ago," said Monica Ningen, CEO of Property & Casualty Reinsurance US at Swiss Re.
But El Niño is only one piece of an increasingly complex climate puzzle for catastrophe risk insurers.
While hurricanes were once their chief catastrophe risk, climate change is increasing flooding and wildfires, in turn making risk modeling more intricate and challenging.
"History has a limit in terms of how much it can teach us," said Steve Bowen, chief science officer at reinsurance broker Gallagher Re, noting that the changing weather patterns could be reducing the predictive value of risk models.
Insurers are responding by developing increasingly sophisticated catastrophe models that combine seasonal climate signals with property-level exposure data to estimate the range of financial losses they could face from natural disasters.
Some risk experts say insurers should also focus more on longer-term trends that are reshaping catastrophe risk, such as the rising costs of reconstructing properties and the shifting cost of capital needed to absorb losses.
The industry is also embracing artificial intelligence to improve risk models. AI can help insurers analyze larger volumes of weather and exposure data, said Myra Thomas, an analyst at eMarketer, noting, however, that it can "only go so far."
(Reporting by Ashitha Shivaprasad, Niket Nishant and Manya Saini in Bengaluru; Editing by Michelle Price and Matthew Lewis)
