Hurricane Milton Effect on Global (Re)Insurance Ratings Likely Limited

Κυριακή, 13 Οκτωβρίου 2024 15:57
Hurricane Milton Effect on Global (Re)Insurance Ratings Likely Limited

Hurricane Milton is not likely to affect credit for rated property/casualty (PC) insurers and global reinsurers given very strong capital levels, Fitch Ratings says. However, Florida property insurance specialists, which Fitch does not rate, are vulnerable to the extent the major hurricane generates losses in excess of reinsurance limits.

Milton made landfall near Siesta Key, FL as a Category 3 hurricane and traveled across central Florida before moving off the east coast as a Category 1 storm. It has caused considerable economic and insured losses from high winds, substantial storm surge, heavy rainfall, tornadoes and flooding.

We estimate Milton’s insured losses will range from $30 billion-$50 billion, the largest insured loss since Hurricane Ian (a strong Category 4) ravaged a similar path in 2022 and caused $60 billion of losses. Milton will be a 4Q and 2024 earnings event for large rated insurers with Florida exposure. The insurance losses will hit reinsurance attachment points, shifting a meaningful amount of losses to the reinsurance market, particularly from the Florida specialist companies with lower retentions.

Ultimate losses will also depend on demand surge, as Milton follows closely on the heels of Hurricane Helene, a Category 4 that devastated the southeast U.S. two weeks earlier. Higher demand and limited supply of labor and materials needed to adjust claims and repair/rebuild following multiple large-scale disasters can increase insured losses by 20% or more.

Milton will push global industry insured losses thus far in 2024 to over $100 billion, which is the fifth consecutive year losses have crossed this threshold. This heightened level of catastrophe losses will likely limit any potential for rate declines in property catastrophe business in 2025 as (re)insurers maintain underwriting discipline. Florida property experienced flat to 10% rate declines at June/July 2024 reinsurance renewals, reflecting the limited impact of the 2023 hurricane season.

The property market could see a hardening of premium rates, depending on the ultimate Milton losses and the amount of additional catastrophe losses for the remainder of 2024. However, the sizable property reinsurance price increases experienced in 2023 are unlikely given the more adequate current pricing environment.

A broad spectrum of insurance companies will be affected by Milton as primary Florida homeowners’ writers manage risk accumulations by ceding a large proportion of business to third-party reinsurers. Most large national underwriters do not have substantial market share in Florida and have cut policies in force via non-renewals to manage balance sheet exposure and reinsurance program costs.

The Florida homeowners’ insurance market’s precarious position will weaken further with the destruction generated by Milton. The sufficiency of reinsurance coverage is a key concern for Florida homeowners’ specialists given relatively low absolute capital levels, limited business diversification and questions as to their ability to raise capital following large loss events.

Florida homeowners’ specialist reinsurance programs are likely able to absorb losses from events up to approximately 1-in-100-years. Losses above such levels could go “over the top” of catastrophe reinsurance programs, leading to a potentially rapid erosion of capital. We do not expect Milton’s losses to exhaust catastrophe reinsurance protection for most Florida specialists; although individual insurers with unique risk concentrations or meaningful modeling errors may report higher-than-expected gross losses. Insurers remain exposed should an additional storm or storms hit Florida this hurricane season.

Milton will test the numerous recent Florida legislative and regulatory tort reforms, including the removal of one-way attorney fees and prohibition of the assignment of benefits. However, the financial benefit of the reforms will need to be proven through various catastrophe events before they can be deemed successful and supportive of longer-term private market capacity.

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