Regional hurricane landfall patterns, not basin-wide totals, key for 2026 ILS portfolios: Hohermuth, Schroders Capital

While early forecasts for this year’s Atlantic hurricane season appear mixed, Dr. Benjamin Hohermuth of Schroders Capital ILS suggests that for insurance-linked securities (ILS) portfolios, the regional message is far more important than basin-wide totals. This regional focus creates vital scope for portfolio repositioning ahead of the season and for tactical trading as conditions evolve.

In a new article authored by Hohermuth, who serves as a Senior Nat Cat Specialist, Non-Life at Schroders Capital ILS, the specialist shared the firm’s outlook for the insurance-linked securities market as the key 2026 Atlantic hurricane season approaches.

Recall, that forecasts from Tropical Storm Risk (TSR) have called for 12 named tropical storms, 5 hurricanes and just 1 major hurricane for the 2026 Atlantic hurricane season, while Colorado State University has called for 13 named tropical storms, 6 hurricanes and 2 major hurricanes.

“For ILS managers, Atlantic hurricane risk deserves close seasonal attention because it is a key peak peril and much of that exposure is concentrated in the June to November hurricane season, when hurricane-linked positions are most “on-risk” and earn their associated risk premia. While seasonal forecasts are inherently uncertain, large-scale climate signals provide some value to reposition the portfolio ahead of the season,” Hohermuth explained.

Adding: “The El Niño Southern Oscillation (ENSO) is the dominant driver of year-to-year variability in Atlantic hurricane activity. ENSO describes the irregular fluctuation of sea surface temperature (SST) and atmospheric pressure across the equatorial Pacific Ocean, cycling between warm (El Niño), cool (La Niña), and neutral phases. The phenomenon is primarily monitored using SST anomalies in the so-called Niño 3.4 region, a critical zone in the central equatorial Pacific.”

However, another important driver of Atlantic hurricane activity is SST in the Main Development Region (MDR), defined as the tropical North Atlantic extending from the west coast of Africa to Central America.

Hohermuth emphasised that warmer MDR SSTs provide the necessary fuel for hurricane genesis and intensification, particularly during the peak August to October period of the season.

Additionally, the specialist observed that the Pacific is currently in a decaying La Niña state moving towards neutral conditions with a 90% chance of El Niño conditions occurring during the peak period of the hurricane season, which runs through August to October.

“For an ILS portfolio, the regional landfall pattern matters more than basin-wide landfalls. At Schroders Capital ILS, we constantly monitor regional seasonal activity using public and commercial data sets and tools. The most granular data we use is a bespoke data set developed by Reask which translates the seasonal climate forecasts from the European Centre for Medium Range Weather Forecasts (ECMWF) into climate-aware stochastic track sets,” Hohermuth added.

According to the forecast shared in Hohermuth’s article, indications suggest that the Gulf and Caribbean will be quieter than usual this year, consistent with the canonical El Niño suppression footprint due to higher vertical wind shear.

However, both the North- and Southeast reportedly face elevated risk, as warm sea surface temperatures extending into the western Atlantic, support storm maintenance and potential intensification.

“An El Niño-like environment may reduce activity in parts of the Atlantic basin, but it does not remove the risk of high-impact landfalls. While we expect to see fewer storms overall, the ones that do form still have the potential to rapidly intensify if they hit areas of elevated SST. Consequently, while the forecast of hurricane landfalls for Florida is slightly down from climatology, the forecast for major hurricane landfalls is up. For the South- and Northeast, the picture is even clearer with major hurricane landfalls predicted to increase more than all hurricane landfalls on a relative basis,” Hohermuth explained.

Furthermore, Hohermuth articulates that what is even more important for ILS portfolio management than regional landfall activity, are changes in simulated losses, as well as questioning how the anticipated changes in seasonal landfall frequency ultimately impact reinsurance risk.

To demonstrate this, Hohermuth noted that Schroders Capital’s ILS team modeled the expected loss (EL) for both nationwide and regional industry loss warranties (ILW), while modifying the regional landfall rates from a conventional vendor model for each hurricane category to align with Reask’s climate-conscious forecast.

For the entire contiguous United States, the change in EL remains relatively stable when compared to the 1991-2020 baseline, with a slight increase observed in higher market losses. This trend is influenced by the elevated SSTs, which contribute to a minor rise in significant hurricane landfalls.

“The early outlook for the 2026 hurricane season remains mixed but already provides a useful signal. A canonical El Niño event is likely to occur during the peak season, although its actual strength and pattern are still uncertain,” Hohermuth added.

“At the same time, the Atlantic main development region is still warmer than climatology and even more so in the Gulf and along the east coast. This means that while an El Niño typically suppresses activity in the Caribbean and the Gulf through increased shear, and we consequently expect fewer total storms, the systems that do form may intensify to major hurricanes, especially if they cross warm waters before landfall.

“For ILS portfolios, the more important message is regional rather than basin-wide. Current signals point to lower activity and losses in the Gulf, but relatively higher risk in the South- and Northeast, especially for stronger events. This creates scope for portfolio repositioning ahead of the season and for tactical trading as conditions evolve,” Hohermuth concluded.