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Hurricane Milton Economic and Insurance Loss Forecast: Impact on Re/Insurers

    Economic and insured losses from Hurricane Milton remain uncertain, Milton is the second major storm to hit the U.S. within two weeks, following Hurricane Helene. Hurricane Milton is anticipated to be one of the most powerful and economically detrimental hurricanes to make landfall in the western region of Florida. Beinsure Media analysts reviewed S&P report and catastrophe modeling companies’ forecasts regarding the potential losses from Hurricane Milton and present a review on the Milton’s impact on major Florida’s insurance companies and the global reinsurance sector.

    Due to the uncertainty around the scale of losses, S&P Global is analyzing several industry loss scenarios and their potential effects on U.S. insurers. For context, Hurricane Ian, a Category 4 storm that hit Florida in 2022, led to insured losses of about $60 bn.

    We assume S&P rated insurers’ exposure to property business in Florida is less than 33% of their total insurance business in the state and, on average, their exposure is more to residential than to commercial.

    While the magnitude of insured losses remains unknown, most rated U.S. primary P&C insurers entered 2024 with substantial capital buffers at the 99.99% confidence level under our risk-based capital adequacy model.

    Hurricane Milton: Key Highlights

    • Economic and insured losses from Hurricane Milton remain unclear, but it is expected to be one of the most damaging hurricanes to hit western Florida. It follows Hurricane Helene, which hit the U.S. two weeks earlier.
    • Insurers’ exposure to property in Florida averages less than 33% of their business, with more focus on residential than commercial properties.
    • Most U.S. P&C insurers entered 2024 with strong capital reserves, which could absorb losses from Milton and other events in 2024 without affecting capitalization.
    • Global insured natural catastrophe losses reached $60 bn in the first half of 2024, driven mainly by severe thunderstorms in the U.S., accounting for 70% of these losses.
    • Structural changes in reinsurance programs and fewer tail events in 2023 reduced the top 19 reinsurers’ market share for global catastrophe losses to about 10%. However, with Hurricane Milton, this could rise to around 20%.
    • Reinsurers are projected to benefit from rising investment income, with net investment yields expected at 3.5-4% in 2024-2025. The combined ratio for reinsurers is forecasted at 92%-96%, with a natural catastrophe load of 8-10 percentage points. Return on equity is expected to stay in the low to mid-teens for 2024-2025.

    Hurricane Milton is one of the most powerful storms to make landfall in western Florida, following closely after Hurricane Helene. While economic and insured losses remain uncertain, the potential scale of damage could lead to significant impacts on the insurance and reinsurance sectors.

    The storm has raised concerns among U.S. insurers and global reinsurers, particularly because it arrives amid an already active year for natural catastrophes.

    In 2024, global insured losses from natural catastrophes reached $60 bn by mid-year, primarily due to severe thunderstorms in the U.S. Milton’s potential impact adds further strain on the catastrophe budgets of insurers, many of whom had already been dealing with significant weather-related losses throughout the year.

    U.S. property and casualty insurers entered 2024 with substantial capital reserves, allowing them to absorb some of the financial impact without risking their overall capitalization. However, Milton’s losses, combined with other events, could exhaust the catastrophe budgets of several insurers, potentially affecting underwriting margins and earnings.

    U.S. P&C insurers to face earnings event from Hurricane Milton insured losses

    U.S. P&C insurers to face earnings event from Hurricane Milton insured losses
    Source: S&P Global

    In first-half 2024, capital and pre-tax operating incomes have mostly remained strong. Given that many primary insurers are already close to 2024 catastrophe budgets based on first-half catastrophe losses, we believe the losses from Hurricane Milton, combined with other weather-related losses so far, could fully exhaust their 2024 catastrophe budgets.

    This will affect underwriting margins and earnings, but not capitalization. Swiiss Re analysts suggest that if losses from Milton are contained, the reinsurance sector may still remain within its annual catastrophe budgets.

    However, given the storm’s scale and the active nature of the 2024 hurricane season, the full extent of the damage remains to be seen. The storm could ultimately shape global reinsurance claims for the second half of 2024.

    The storm inflicted from $30 bn to $100 bn in damages and caused significant flooding and destruction along its path. The hurricane claimed at least 14 lives, with hundreds more injured. Its rapid intensification was fueled by extremely warm sea surface temperatures and favorable atmospheric conditions.

    Hurricane Milton insured losses forcasts

    • Moody’s RMS Event Response estimates private insurance losses from Hurricane Milton to range between $22 bn and $36 bn
    • Verisk has estimated insured onshore property losses from Hurricane Milton between $30 bn and $50 bn. These estimates come from Verisk’s Extreme Event Solutions
    • Florida’s Office of Insurance Regulation reported $2.3 bn in insured losses from Hurricane Milton, with 189,858 claims filed and 8.4% closed
    • CoreLogic released its initial wind and flood loss estimates for Hurricane Milton. The company projects insured wind and flood losses to range from $17 bn to $28 bn
    • Karen Clark & Co. (KCC) provided a similar estimate, placing privately insured losses from wind, storm surge, and inland flooding in the U.S. at around $36 bn.
    • Florida faces its second major hurricane, with predictions of record-breaking storm surges and flooding. Private flood insurance premiums in the state
    • Morningstar DBRS estimates Hurricane Milton insured losses could reach $60 bn, with $10 bn linked to flooding

    The loss estimate covers damages to residential, commercial, and industrial properties, along with automobiles. This includes coverage for building damage, contents, time element, and the impact of demand surge.

    However, the estimate does not account for payouts from the National Flood Insurance Program (NFIP) or other non-modeled losses, such as tornadoes caused by the storm.

    Hurricane Milton losses may exhaust U.S. P&C re/insurers’ budgets

    In S&P Global view, insurers and reinsurers face substantial exposure to the damage it could cause. The key question is whether potential losses will stay within reinsurers’ annual natural catastrophe budgets or annual earnings, or whether they will escalate and become a capital event.

    At this stage we think the impact from Hurricane Milton, combined with natural catastrophe losses incurred so far in 2024, could still fall within reinsurers’ catastrophe budgets.

    Frequent small to medium events caused global insured losses from natural catastrophes to reach $60 bn in the first half of 2024, according to Swiss Re Institute’s preliminary estimates. Severe thunderstorms in the US accounted for 70% of these losses.

    Hurricane Milton losses may exhaust U.S. P&C re/insurers' budgets

    Thunderstorms, or severe convective storms (SCS), involve strong winds, tornadoes, hail, and heavy rain. These storms led to global insured losses of $42 bn in the first half of 2024.

    In the US, 12 storms each caused losses of $1 bn or more, highlighting the significant loss potential.

    H1 previous 10-year average refers to the average first-half losses between 2014 and 2023. Preliminary and, due to rounding, some totals may not correspond with the sum of the separate figures.

    While heavy rainfall is expected to increase in a warmer climate, swift urban growth, land use alteration, scarce drainage systems, and dry soils intensify loss severity.

    TOP 15 U.S. P&C insurers in Florida

    Insurance groupFlorida property premiums (mn $)Personal property (%)Commercial property (%)Market share (% of total Florida property)
    1Citizens Property3,209100.00.016.0
    2State Farm Mutual Automobile Insurance1,21997.52.56.1
    3Allstate71373.326.73.5
    4United Services Automobile Assn.697100.00.03.5
    5Progressive633100.00.03.1
    6Chubb57872.627.42.9
    7Berkshire Hathaway Insurance41223.276.82.0
    8Tokio Marine & Nichido Fire Insurance27981.418.61.4
    9Farmers Insurance25899.90.11.3
    10American International Group25178.321.71.2
    11Nationwide Mutual Insurance22758.241.81.1
    12Liberty Mutual20939.360.71.0
    13Hartford Financial Services15015.684.40.7
    14American Family Mutual Insurance14052.847.20.7
    15Zurich Reinsurance1250.0100.00.6
     Total TOP9,43284.715.346.9
     P&C insurance industry20,11385.914.1100.0
    Source: S&P Global

    Milton is a significant event for global reinsurance

    In 2024, the global insurance sector again faces a highly active natural catastrophe environment. During the first half of the year, global insured losses from natural catastrophes soared to about $60 bn, significantly higher than the 10-year average of $37 bn, as reported by Swiss Re Institute.

    Much of these losses, around 70%, stemmed from severe convective storms predominantly in the U.S. First-half events also included the earthquake in Japan, in January, and devastating floods in the United Arab Emirates, Europe, and Brazil.

    Milton, following closely on the heels of Helene, will likely significantly increase global reinsurers’ claims payouts in the second half of 2024. This period has also been marked by other notable events, including Hurricanes Beryl, Debby, and Francine, as well as wildfires and hailstorms in Canada and floods in Central and Eastern Europe.

    Structural changes in reinsurance programs

    Structural changes in reinsurance programs

    Structural changes in reinsurance programs and fewer tail events in 2023 led the top 19 rated global reinsurers to hold only about 10% of the market share for global insured natural catastrophe losses.

    A similar market share is likely for the first half of this year. However, with Milton’s potential scale, this market share could rise to around 20%, closer to the long-term average.

    The sector’s combined earnings for 2024 are expected at $44.8 bn, with a catastrophe budget of $19.2 bn. This creates a buffer of around $64 bn before catastrophe losses impact capital.

    Although capital levels and risk appetites differ among reinsurers, the sector’s overall resiliency has grown in recent years.

    According to our annual natural catastrophe survey, the net exposure for the top 19 reinsurers in exposed zone 3, across one-in-10-year to one-in-500-year return periods, ranges from $6 bn to $46 bn.

    Base-case earnings scenario for the reinsurance sector

    Despite these challenges, our base-case earnings scenario for the reinsurance sector remains intact. We forecast a combined ratio of 92-96%, factoring in a natural catastrophe load of 8-10 percentage points, with a return on equity in the low to mid-teens for 2024-2025.

    We think reinsurers are approaching their annual natural catastrophe budgets. Whether budgets are fully consumed or exceeded will depend on the development of global natural catastrophes for the remainder of the year.

    Additionally, we expect the sector to benefit from rising investment income, with net investment yields of 3.5-4% during this period. Reinsurers entered 2024 with strong capitalization, with the top 20 showing capital adequacy redundancy of 6.1% at the 99.99% confidence level at year-end 2023 under our risk-based capital model.

    Reinsurers’ base case earnings assumptions remain unchanged

    (%)202320242025f
    Net combined ratio91.592-9692-96
    (Favorable)/unfavorable reserve developments-2(1)-(2)(1)-(2)
    Net natural catastrophe losses’ impact on the combined ratio4.48-108-10
    Accident-year combined ratio, excluding natural catastrophe losses, reserve developments, and pandemic losses89.186-8786-87
    Return on equity21.4Low to mid teensLow to mid teens
    Net investment yield3.43.5-4.03.5-4.0
    Source: S&P Global

    Hurricane Milton losses contained within reinsurance sector`s budget

    Hurricane Milton losses contained within reinsurance sector`s budget
    Source: S&P Global

    Hurricane Milton, a Category 5 storm, formed in early October 2024 in the Gulf of Mexico. It rapidly intensified, reaching peak winds of 180 mph and a minimum central pressure of 897 mbar, making it one of the strongest hurricanes in recent history.

    The storm made landfall on October 9, 2024, near Florida’s west coast, causing widespread damage, particularly in the Tampa Bay area. Evacuations were ordered, and flights were canceled as the storm approached.

    Though it weakened before landfall, Milton remained a formidable threat and added to an already active Atlantic hurricane season.

    FAQ

    What is the projected impact of Hurricane Milton on U.S. insurers?

    Hurricane Milton is expected to cause significant insured losses, which could lead to an earnings event for U.S. primary property and casualty (P&C) insurers.

    How does Hurricane Milton compare to previous storms?

    Milton is the second major storm to hit the U.S. in two weeks, following Hurricane Helene. It is projected to be one of the most economically detrimental hurricanes to hit Florida, similar to the impact of Hurricane Ian in 2022.

    What are the possible industry loss scenarios due to Hurricane Milton?

    Due to the uncertainty around the scale of losses, various industry loss scenarios are being analyzed, which will determine the potential impact on both U.S. insurers and global reinsurers.

    How prepared are U.S. insurers for Hurricane Milton’s potential losses?

    Most U.S. P&C insurers entered 2024 with strong capital buffers, giving them a substantial cushion to absorb potential losses, although many are already close to their 2024 catastrophe budgets.

    Will Hurricane Milton exhaust U.S. insurers’ catastrophe budgets?

    With first-half catastrophe losses already straining budgets, Milton’s impact, combined with other weather-related losses, may fully exhaust the 2024 catastrophe budgets of many U.S. insurers.

    What is the global insurance sector’s exposure to natural catastrophe losses in 2024?

    In 2024, global insured losses from natural catastrophes will reach $100 bn, driven largely by severe storms in the U.S. Milton is expected to further increase these global claims.

    How resilient is the reinsurance sector despite Hurricane Milton?

    Despite the challenges posed by Milton, the reinsurance sector is expected to remain within its catastrophe budgets, with strong capitalization and rising investment income providing additional support.

    ………………..

    ANALYSTS: Johannes Bender – Primary Credit Analysts at S&P Global (Frankfurt), Patricia A Kwan – Primary Credit Analysts at S&P Global (New York), Taoufik Gharib – Primary Credit Analysts at S&P Global (New York), Saurabh B Khasnis – Primary Credit Analysts at S&P Global (Englewood)

    Edited by Nataly Kramer — Beinsure Media’s Editor

    Reviewed by Oleg Parashchak – CEO Finance Media and Beinsure Media

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