AIR: Insured value of coastal U.S. property exceeds $10 trillion

Risk modelling firm AIR Worldwide has just published a very timely update to its ‘The Coastline at Risk‘ report, in which it presents updated estimates for the insured value of residential and commercial U.S. properties in states and counties  along the Atlantic eastern seaboard and the Gulf Coast.

This update from AIR Worldwide is timely for a number of reasons. One, the fact that the 2013 Atlantic Hurricane Season has just begun, another being that we have just covered the value of residential property exposed to storm surge in an article published earlier today here and another as the June 1 renewals which largely comprise Florida wind have just completed.

The first version of this report was published back in 2005 after hurricane Katrina. That report stated:

“While the scientific debate over the effects of global warming on the frequency and severity of hurricanes remains inconclusive, there is no question that the significant increase in the number and value of exposed properties over the last decade has and will continue to contribute to increasing hurricane losses for insurers.”

AIR updated the report in 2008 and found that the insured value of properties in coastal areas of the U.S. had grown at a compound annual rate of about 7% between 2005 and 2008. From 2008 up to the end of 2012 the growth rate had slowed a little, with the growth in insured values in coastal regions running at 4% per annum for the last five years.

AIR notes that the recession in the U.S. is partly to blame, with a slow down in property construction. It also makes a very good point about the difference between property value and property replacement value, as values had dropped during the recession but the replacement value of a property does not drop in the same way. AIR believes that the difference between these two valuations is important and so the report uses the replacement value, or the cost to rebuild, to largely determine the insured values reported.  AIR expects the growth rate to pick up again as the U.S. economy improves.

The data compiled for this update by AIR, which includes data up to the end of 2012, shows that the insured value of residential and commercial properties in coastal U.S. counties now exceeds $10 trillion. In the coastal counties of Florida and New York alone the insured values approach $3 trillion.

On a coastal counties basis, New York has the highest insured values of coastal property at over $2.9 trillion with Florida coming a close second at over $2.8 billion. However Florida has a larger proportion of the states overall property exposure in coastal counties, at 79%.

The numbers here are huge and show just why U.S. hurricane risk is the number one peril in the global insurance and reinsurance market. The exposure is enormous and the potential for losses to the insurance and reinsurance sector potentially catastrophic.

It’s also no surprise that the catastrophe bond market continues to hover around the 70% exposed to U.S. hurricane perils as it is clearly where the need for risk transfer is greatest. It is again no surprise that for many of the capital markets investors who now allocate capital to reinsurance, U.S. hurricane risk is the main peril of interest currently.

You can access the report update, which features a breakdown of insured property values by state and county, from AIR Worldwide here in PDF format.

We’d also recommend you read our earlier article on residential property values at risk to hurricane driven storm surge.

Keep in touch with the U.S. hurricane season as it develops with our 2013 Atlantic Hurricane Season page.