Above Average Atlantic Hurricane Season Forecast

Colorado State University (CSU) and Tropical Storm Risk (TSR) have forecast the activity levels for the 2022 North Atlantic Hurricane Season to be above average. The main reasons for the increased level of activity are warmer sea temperatures and a higher likelihood of La Niña conditions, which are more conducive to the formation and development of hurricanes, than El Niño conditions which tend to suppress hurricane activity.

CSU has forecast that there will be 19 named storms, 9 hurricanes and 4 major hurricanes, whilst TSR has forecast that there will be 18 named storms, 9 hurricanes and 4 major hurricanes. Both predictions are higher than the initial forecasts each entity made last year, which ultimately underestimated the number of named storms and overestimated the number of hurricanes. The forecasts are also above the long-term, 10-year and the, recently increased, National Oceanic and Atmospheric Administration (NOAA) definition of an ‘average’ season. The forecasters do, however, stress the uncertainty in making predictions at this stage in the year, with TSR often issuing a revised forecast later in the year.

Alpha comment

Above average hurricane activity appears to, paradoxically, becoming the norm. There is a high degree of uncertainty in forecasts made this early, but the climatic conditions appear to be in place for (re)insurers potentially to have another difficult wind season, although the most important factor driving this is the number of hurricanes which make landfall (and ultimately end up costing the (re)insurance market billions of dollars) rather than just the number which form. The forecasts made are both in line with the 5-year average, a period which has seen the property reinsurance subclass at Lloyd’s report a combined ratio above 100% in 4 of the last 5 years, with last year (98.9%) the only year where the subclass produced a profit. We are, however, pleased with early signs this year that reinsurance underwriters are finally pushing for meaningful improvements in the pricing and structure of the covers they are providing, which hopefully should reduce the volatility and enhance the underlying profitability of their portfolios in this time of ‘above-average’ activity. We will continue to monitor the forecasts made and provide a further update later in the year.