This Could be an Expensive Summer

The first hurricane has landed in the U.S. Beryl swept ashore in Texas and then wreaked havoc across the U.S.

As reported in Reuters, Beryl could cost the U.S. about $2.7 billion. The storm came ashore as a low-end Category 1 hurricane. It’s the first landfalling hurricane in what analysts think will be an active season. It’s just the first of eight to thirteen hurricanes forecast. And of those, four to seven could be major hurricanes. That means this could be an expensive season.However, insurance companies are soaring, as we can see from the Nasdaq Insurance Index:

To be fair, this index tracks all insurance, not just property. But investors understand that insurers have a “get out of jail free” card to raise rates, thanks to property damage increases. And boy have they increased.

Storms that cause more than a billion dollars in damage used to be rare. Prior to 2000, you rarely got more than a handful per year. In 2023, there were nearly thirty, as you can see in the chart:

According to the National Oceanic and Atmospheric Administration (NOAA) we have already had fifteen +$1 billion weather disasters in 2024. Based on the NOAA data, Beryl was cheap. Tropical cyclones average about $22.8 billion per storm. And while they aren’t common (about 1.4 per year on average since 1980) they are the most expensive. 

One reason weather events are getting more expensive is inflation. The average price of a house in Florida rose 700% since 1980 according to the St. Louis Fed. That’s incredible inflation. It means that every $100 dollars of damage a hurricane did in 1980 would cost $800 today. 

And there are a lot more houses in vulnerable areas today than forty years ago. In 1980 the state of Florida averaged 92 people per square mile. Today, there are 338 people per square mile…and the housing density followed that trend.

We use Florida as an example, but the trend is similar in many places subject to weather disasters. More people and higher costs make these events much more expensive. This trend has disrupted the insurance industry. 

Insurers had to hike prices to cover losses. An industry built around stable, predictable risk is one of the unexpected victims of high inflation. There will be others. 

Ultimately, insurers will be fine. Now more than ever, they can pass along costs to customers. But expect this year to be a tough one if the weather analysts are correct.

For the Good,

The Mangrove Investor Team

Numbers You Need to Know

2.755 trillion

The U.S. has sustained 391 weather and climate disasters since 1980 where overall damages/costs reached or exceeded $1 billion (including CPI adjustment to 2024). The total cost of these 391 events exceeds $2.755 trillion. (National Centers for Environmental Information)

125 Billion

Hurricane Katrina is the U.S. most expensive natural disaster. The total costs of Hurricane Katrina amounted to 125 billion U.S. dollars at the time the disaster occurred in 2005. (Statista)

25

NOAA National Weather Service forecasters at the Climate Prediction Centerpredict above-normal hurricane activity in the Atlantic basin this year. NOAA is forecasting a range of 17 to 25 total named storms. (NOAA)

What’s New in Sustainable Investing

Employees Suing American Airlines Don’t Want Their 401(k)s in ESG Funds

A class-action lawsuit against American Airlines filed by employees opposed to Environmental, Social and Governance (ESG) funds used in their 401(k)s could redefine how employers handle ESG investing and respond to further litigation.(Inside Climate News)

New Independent Science Based Taxonomy (ISBT) enhances sustainable investment

In the realm of sustainable finance, the clarity and credibility of categorising economic activities have received a substantial boost with the introduction of the Independent Science Based Taxonomy (ISBT). (Fintech Global)

Video Of The Week