A new report from Morningstar DBRS predicts that Hurricane Milton will lead to insured losses nearing $100 bn. This could reverse the stabilization of reinsurance prices observed during mid-year renewals, pushing them back on an upward path.
Hurricane Milton made landfall on October 9th in Siesta Key, Sarasota County, Florida. As a Category 3 storm, it brought strong winds, heavy rain, tornadoes, and storm surges.
The hurricane caused significant loss of life, property damage, infrastructure issues, and widespread power outages.
While Milton avoided a direct hit on the densely populated Tampa Bay area, it is expected to rank among the top five costliest natural disasters in U.S. history.
Judging by the storm surge and heavy rainfall in the Sarasota and Tampa Bay area, the insured losses covered by NFIP could potentially account for up to $10 bn of our $30 bn to $60 bn estimate of insured losses, similar to the losses from Hurricane Ian in 2022.
The insured loss estimates include damages covered by the National Flood Insurance Program (NFIP), as private insurers typically don’t cover flood damage.
The report noted that while reinsurers and property & casualty insurance companies will likely see their combined ratios increase, solvency levels should remain stable. Morningstar DBRS does not expect any credit rating pressures, assuming the rest of the Atlantic hurricane season remains relatively calm.
According to Morningstar DBRS, while large national insurers may be relatively shielded from major financial hits, smaller and regional insurers could face greater pressure.
Over recent years, many national insurers have scaled back or exited Florida’s residential insurance market due to profitability concerns.
As a result, Citizens Property Insurance Corporation, the state’s public insurer, has become the largest residential insurer in Florida.
Although Citizens is expected to bear a considerable share of the losses, its financial stability remains intact due to its ability to levy assessments on existing policyholders. In contrast, smaller, local insurers may struggle with increased earnings pressure.
Moody’s RMS Event Response, meanwhile, estimates that the combined insured losses from Hurricane Milton and the earlier Hurricane Helene could range between $35 bn and $55 bn.
“The initial combined loss estimate is informed by Moody’s RMS Event Response’s rigorous approach to event insured loss estimation,” said Mohsen Rahnama, chief risk modeling officer at Moody’s. He noted that their estimates incorporate observational data, aerial imagery, and field reconnaissance, spanning over 2,000 miles of impacted regions in Florida.
The firm suggested that Milton will primarily impact reinsurers’ earnings, assuming no further significant storms this season. However, with two hurricanes hitting Florida within two weeks, the prior stabilization of reinsurance prices will likely shift back to an upward trend.
As such, and assuming a relatively benign remainder of the Atlantic hurricane season, we do not anticipate any credit ratings pressure. However, after two back-to-back hurricanes in Florida within two weeks of each other, the stabilisation of reinsurance prices seen during mid-year renewals is likely to revert to their upward trajectory.
Morningstar DBRS urged primary insurers to prepare for potential reinsurance price increases, particularly in the U.S. property catastrophe market. Insurers may also need to carefully manage their capital, especially if they choose to retain more risk due to rising reinsurance costs.
The report concluded that higher insurance prices are likely, creating challenges for households and businesses relying on property insurance for protection against severe weather.
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