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Hurricane Milton Triggers Major Losses for Insurers and Reinsurers

    Hurricane Milton is anticipated to be one of the most powerful and economically detrimental hurricanes to make landfall in the western region of Florida, according to projections made by the National Hurricane Center (NHC).

    The hurricane was preceded by a spate of tornadoes and made landfall near Siesta Key in Sarasota County as a category three storm on the five-step Saffir-Simpson scale, with winds of 120mph, the NHC said.

    Milton is the second hurricane to hit the southern US in a fortnight. It comes after Hurricane Helene wreaked havoc across several south-eastern states last month, killing more than 225 people and destroying roads across western North Carolina.

    Hurricane Milton remains a Category 4 storm within the Gulf of Mexico, having been downgraded from its previous Category 5 status.

    Hurricane Milton is projected to make landfall in the Tampa area as a Category 3 storm. The precise location of landfall is still uncertain, but the current NHC track indicates it will be somewhere near Tampa.

    Key Findings from Hurricane Milton

    • Insurance losses from Hurricane Milton are uncertain but early estimates put the damage at up to $60 bn. Morningstar DBRS warned that the accumulation of losses over the 2024 hurricane season.
    • Estimated insured losses could reach tens of billions of dollars. BMS Group suggests losses could exceed $20 bn, especially in highly insured areas like Tampa.
    • The storm could lead to significant losses for reinsurers, potentially extending the hard market for property catastrophe reinsurance. Analysts indicate that a $50 bn+ industry event would heavily impact reinsurers’ financials.
    • A prolonged hard market may yield additional years of excess returns for Bermudian reinsurers, alleviating concerns about softening rates in upcoming renewals.
    • The 1921 Tampa Bay hurricane, which had similar characteristics, caused significant flooding with a 10-12 foot storm surge.
    • Comparisons to 2022’s Hurricane Ian highlight potential insured losses up to $62 bn or more, depending on Milton’s path and intensity.
    • A major hurricane making landfall in the Tampa Bay area could have long-term effects on the insurance industry, potentially reshaping the market for years.

    Considering the magnitude and geographic scope of Milton’s potential landfall, it is anticipated that this event will result in substantial insured losses, potentially reaching tens of billions of dollars.

    Large insurance industry losses from Hurricane Milton

    This hurricane is also expected to be a big loss event for reinsurers, RBC Capital Markets highlights.

    Large insurance industry losses from major hurricane Milton’s eventual impacts in Florida could potentially lead to an extended hard market for property cat reinsurance, according to Jefferies.

    Insurance losses from Hurricane Milton are uncertain but early estimates put the damage at up to $60bn, with analysts warning that the US’s 2024 hurricane season will “dent” insurers’ profitability, according to FT.

    Credit rating agency Morningstar DBRS warned that the accumulation of losses over the 2024 hurricane season, which runs until the end of November, would “likely make a dent in insurers’ profitability”, particularly for those with “significant exposures to personal lines in Florida” (see Home Insurance in Florida: Lower Rate and Risk Crisis).

    Hurricane Milton’s estimated privately insured losses are near $36 bn in the United States from wind, storm surge and inland flooding, according to Karen Clark and Co.

    The estimate includes privately insured damage to residential, commercial and industrial properties and automobiles, as well as business interruption, KCC said in a statement. It does not include boats, offshore properties, or National Flood Insurance Program losses.

    In contrast to Hurricane Helene, most of the damage from Milton was caused by wind, so a higher proportion of the damage from Milton will be insured, KCC said. The loss estimate is based on the high-resolution KCC US Hurricane Reference Model, KCC said.

    Insurers considered the northern part of the state as a more attractive place to write policies

    Insurers considered the northern part of the state as a more attractive place to write policies

    While south-east Florida has long been seen as a high-risk area for hurricanes, insurers considered the northern part of the state as a more attractive place to write policies, said NSI Insurance.

    Analysts explained that should the hard market extend, it will alleviate recent concerns that the upcoming January renewals would show softening, and likely wind up supporting a further one/two more years of excess returns for Bermudians.

    While too early to pinpoint an accurate insurance loss range, BMS Group has noted it is safe to say that Hurricane Milton will likely be at least a $20 bn insurance market event.

    “While too early to make insured loss estimates, a major hurricane impact in one of Florida’s most heavily populated regions could result in mid-double-digit billion dollar loss”, according to Jefferies.

    With its projected path and intensity, Hurricane Milton has the potential to become one of the most expensive storms to hit Florida, analysts predict.

    The potential for large insured losses

    The potential for large insured losses

    The potential for large insured losses exists as a result of the hurricane in a densely populated region of Florida, such as Tampa, with elevated insured property values, analysts highlight.

    While newer building codes may alleviate some of the damage, older properties remain susceptible to significant losses.

    The track for Milton is rare but has happened before. For reference, the last hurricane to hit the Tampa area was in late October 1921 with an estimated 11 foot storm surge and 120 mph winds (1848).

    RBC Capital Markets

    “Our view is that a track south of Tampa may potentially cause fewer insured losses and that could be a best-case scenario. We note that our coverage list has minimal exposure to Florida homeowners but losses could reside in reinsurance, commercial property, high net worth homes, auto, and other areas of commercial,” RBC said.

    The initial damages from Hurricane Milton expected on the coast

    In addition to the initial damages expected on the coast when Hurricane Milton makes landfall, further losses inland are also anticipated. As of now, forecasts indicate that Milton will maintain its hurricane status as it makes its way across the Eastern part of the state.

    Analysts note that numerous locations within the state of Florida have been constructed to endure the force of hurricanes. However, there remains the potential for significant losses in the event of a Category 1 or 2 Hurricane.

    Hurricane Ian’s path was located to the south of Milton’s current tracking and ultimately resulted in insured losses amounting to $62 bn.

    It’s important to highlight that 2022’s Hurricane Ian, which made landfall south of Ft Myers, was estimated to be a 1-in-20 year event.

    However, a 1-in-100 year event is estimated by some to result in $175 bn in losses for landfall in the Tampa region, and $70 bn in losses in the Ft Myers region, analysts added.

    The potential for large insured losses

    “While we expect primary commercial carriers to show the largest $ losses, Bermudians should see a greater hit to book value – most notably EG and RNR. Even when considering reinsurers’ move to higher attachments and >35% increases in risk-adjusted prop-CAT reinsurance rates post Hurricane Ian, a loss from a $50bn+ industry event incurred by reinsurers would be meaningful.”

    The last time this happened was the 1921 Tampa Bay hurricane, which made landfall as a Category 3 hurricane and brought 10-12 feet of storm surge flooding to the city.

    As we have pointed out in past tropical updates, if landfall is south of Tampa, it would likely result in a significantly reduced storm surge threat for the Bay – instead of water rushing in, the water would rush out of the bay

    According to BMS Group, while it is still entirely too early to pinpoint an accurate insurance loss range, a storm making landfall in Tampa Bay would be a historic loss for the insurance industry and likely change the insurance market for years.

    BMS Group observed that the $20 bn estimate is solely based on a review of the low end of the catastrphic modeling guidance and some of the historical analogues like the 1921 Tarpon Spring / Tampa Bay Hurricane that today would cause over $25 billion in insurance industry losses.

    FAQs about Hurricane Milton

    What is the current strength of Hurricane Milton?

    Hurricane Milton is a Category 4 storm, recently downgraded from Category 5. It is expected to make landfall as a Category 3 storm near Tampa.

    When and where is Hurricane Milton expected to make landfall?

    Milton is projected to make landfall in the Tampa area late Wednesday night or early Thursday morning. The precise location is still uncertain, but the National Hurricane Center (NHC) indicates it will be near Tampa.

    How much damage is Hurricane Milton expected to cause?

    Insured losses could reach tens of billions of dollars, potentially exceeding $20 bn. The densely populated Tampa area, with high property values, is at significant risk, especially older structures.

    Will Hurricane Milton affect insurance and reinsurance markets?

    Yes, analysts predict substantial losses for reinsurers. The storm could prolong the current hard market for property catastrophe reinsurance, with potential for a $50 bn+ industry event.

    How does Hurricane Milton compare to past hurricanes?

    Milton’s path and intensity are being compared to the 1921 Tampa Bay hurricane and 2022’s Hurricane Ian. Ian caused $62 bn in insured losses, and a similar event in Tampa could result in mid-double-digit billion-dollar losses.

    What are the risks for older properties in the region?

    While newer buildings are designed to withstand hurricanes, older properties are more vulnerable to significant damage, especially in a Category 3 or stronger storm.

    What could be the long-term impact of Hurricane Milton on the insurance industry?

    A major hurricane in Tampa Bay could reshape the insurance market for years, leading to increased reinsurance rates and impacting the financials of both insurers and reinsurers.

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