Milton insured losses in upper-half of $30bn-$60bn range, NFIP up to $10bn: Morningstar DBRS

According to analysis by Morningstar DBRS, the total private and public insurance market loss from hurricane Milton is expected to fall in the upper-half of a $30 billion to $60 billion range, with flood insurance losses to the NFIP expected to be up to $10 billion of the total.

It’s still very early days with hurricane Milton and hard to know how accurate loss estimates are at this stage, as they are still coming in quite a wide range.

“Although not the most feared scenario of a direct hit on the heavily populated area of Tampa Bay, we expect Milton to be among the top five costliest natural catastrophes in the U.S., resulting in insured losses approaching $60 billion, of which approximately $10 billion will be related to flooding,” Morningstar DBRS said.

Adding, “Although reinsurers and P&C companies in our rated universe will likely see their combined ratios creep up, but we do not anticipate any impact on their solvency levels. As such, and assuming a relatively benign remainder of the Atlantic hurricane season, we do not anticipate any credit ratings pressure.”

Direct economic damages from hurricane Milton are expected to be around the $100 billion mark.

The rating agency said, “The Hurricane heavily affected the areas with high reconstruction costs and struck in close proximity to the Tampa metropolitan area, a major economic hub in Florida and among the top 25 in the U.S. by GDP. As such, we expect that potential insured losses will be in the higher half of our initial $30 billion to $60 billion estimate, comparable with Hurricane Ian in 2022.

“Our insured loss estimates include the damage caused by flooding that will be covered by the federally backed National Flooding Insurance Program (NFIP) as flooding is typically not covered under property insurance policies offered by private insurers.

“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 billion of our $30 billion to $60 billion estimate of insured losses.”

As a reminder, the NFIP’s FloodSmart Re catastrophe bonds, which are on-watch according to the latest pricing sheets, begin to attach their reinsurance coverage at a $6 billion loss to the NFIP, while the traditional reinsurance attaches at $7 billion. It’s important to note, there is no clarity of the NFIP claims burden yet and won’t be for some time. Risk modeller estimates will help provide some clarity in the coming week or so, we expect.

For larger insurance carriers and for Florida Citizens, Morningstar DBRS believes the losses from Milton will be manageable.

But for smaller and more locally focused Florida market specialist insurers, the losses from Milton and fact they came so soon after Helene, could prove more of a challenge.

The rating agency said, “Citizens will bear a significant portion of the anticipated losses. However, as a government-backed entity with the ability to levy assessments on existing policyholders, we expect Citizens to maintain its financial strength. Apart from State Farm, which is a large national writer, the majority of the largest residential players in the Florida market are small or mid-size local insurers that we believe will face significant earning pressure from Hurricane Helene and Milton. In the commercial insurance space, the large national insurers dominate the market, and are, in our view, well-positioned to absorb Milton losses.”

After Milton there are implications for the reinsurance cycle, the rating agency also believes.

“Milton will likely remain an earnings event for most global reinsurers, under the assumption that the remainder of the Atlantic hurricane season is relatively quiet. However, after two back-to-back hurricanes in Florida within two weeks of each other, the stabilization of reinsurance prices seen during mid-year renewals is likely to revert to their upward trajectory,” Morningstar DBRS explained.

Further stating, “Primary insurers should be prepared for the potential movement in reinsurance prices, especially in the market for U.S. property catastrophe reinsurance, and be prudent in managing their capital, especially if they decide to retain more risk as a response to the higher costs of reinsurance. Unfortunately, if our forecasts materialize, this is bad news for households and businesses relying on property insurance for protection from severe weather as those prices have nowhere to go but up.”