33% chance hurricane Milton loss above $50bn. Would drive hard market: Euler ILS Partners

According to specialist insurance-linked securities (ILS) investment manager Euler ILS Partners, there is a roughly 33% chance that industry losses from hurricane Milton rise above $50 billion and if that were to happen the manager believes it could drive a very hard market across reinsurance.

In an update from the ILS investment manager seen by Artemis, Euler ILS Partners, which if you recall is the new name for the now bought-out Credit Suisse Insurance Linked Strategies unit, highlights the continued uncertainty over the eventual track and intensity of hurricane Milton.

“As Hurricane Milton approaches Florida, it’s currently projected to make landfall as a Category 3 or possibly Category 4 storm. This raises critical questions about the event’s potential impact on the insurance catastrophe market and the ILS (Insurance-Linked Securities) market,” Euler ILS Partners explained.

Using hurricane Ian from 2022 as a benchmark of sorts, the ILS manager explained that it has a view that Ian was a lower industry loss than some have suggested, putting the insured property catastrophe loss (excluding losses to the NFIP) at closer to US $36 billion.

Then commenting on hurricane Milton and the threat to Tampa, Euler ILS Partners said, “Tampa has roughly three times the population of the area affected by Hurricane Ian. A direct hit or a slightly northward path over Tampa could, in theory, result in three times the losses. This gives us an upper estimate of around USD 100 billion for the region.”

Adding that, “However, based on historical data, a strong Category 4 like Ian can cause 3 to 5 times more physical damage than a Category 3, but only 2 to 3 times more insured loss.

“This suggests that if Milton hits as a Category 3, we could see insured losses in the range of USD 30 billion to 50 billion.”

Still, if Milton’s track is further south of Tampa, the impact to the industry could be meaningful, still.

Euler ILS Partners said, “If the storm tracks south of Tampa Bay, the exposure would be smaller, and we estimate insured losses could fall to around USD 20 billion to 30 billion.”

The ILS investment manager believes that hurricane Milton’s track is likely to remain within the National Hurricane Center forecast cone, saying there is a 66% chance it follows that path.

Then, Euler ILS Partners gives some probabilities for industry losses, saying it sees a roughly 33% chance losses from hurricane Milton could rise above $50 billion for the worst case scenarios, about a 33% chance that losses will range from $30 billion to $50 billion (if it’s a stronger landfall, but not quite worst case), and a 30% chance of a lower impact scenario from hurricane Milton, with insurance and reinsurance market losses falling between $20 billion and $30 billion.

The company noted in its update, “Over the past 20 years, we’ve traded live events with the highest volumes and strongest performance in the market.

“While our models at Euler ILS Partners have grown significantly more sophisticated, these basic considerations still hold and reflect the conditional probabilities for insured market losses.”

The company further explained in its update, that a loss of above the $50 billion level from hurricane Milton could have the effect of driving a “super hard market” in reinsurance, while also pushing up spreads for catastrophe bonds and insurance-linked securities (ILS).

Euler ILS Partners loss projections align with others in the industry, with the $50 billion plus scenario reserved for the more impactful passage into Tampa Bay, but something above $20 billion now anticipated even for a landfall further away from Tampa but still in the forecast cone.

At the $20 billion to $30 billion level, while there would be losses for the insurance-linked securities (ILS) market and possibly for some Florida-focused catastrophe bonds, the impact would be much less significant, across the market, than a $50 billion plus scenario.

Although, it’s worth remembering that some of the other estimates for 2022’s hurricane Ian put the industry losses well above $50 billion and that was not a particularly significant event for the ILS market.

Attachments have risen further still since then and returns have been strong, so even a $50 billion industry loss event could be absorbed within the returns generated so far in 2024 for many cat bond funds and ILS strategies, we believe.

You can track this and every Atlantic hurricane season development using the tracking map and information on our dedicated page.

Also read:

– Hurricane Milton Cat 5 again. Tracks slightly south. Uncertainty still high, loss range wide.

– Safe to say hurricane Milton likely a $20bn+ insurance market event: Siffert, BMS.

– Hurricane wind speeds forecast across entire Florida Peninsula as Milton approaches.

– Mexico’s catastrophe bond presumed safe from hurricane Milton.

– Stone Ridge leads managers cutting mutual cat bond or ILS fund NAVs on hurricane Milton.

– Hurricane Milton could be a huge test for the entire (re)insurance market: Evercore ISI.

– Hurricane Milton losses could amount to tens of billions, but uncertainty high: BMS’ Siffert.

– As hurricane Milton intensifies, Mexico’s catastrophe bond comes into focus.

– Material hurricane Milton losses could change 2025 property reinsurance price trajectory: KBW.

– Cat bond & ILS managers explore options to free cash, as hurricane Milton approaches.

– Hurricane Milton: First Tampa Bay storm surge indications 8 to 12 feet.

– Hurricane Milton is biggest potential ILS market threat since Ian in 2022: Steiger, Icosa.

– Hurricane Milton forecast for costly Florida landfall. Cat bond & ILS market on watch.