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).