Expected $60bn loss from Milton to revert reinsurance pricing stability: Morningstar DBRS

According to a new Morningstar DBRS report, Hurricane Milton is expected to result in insured losses approaching $60 billion, likely causing the stabilisation of reinsurance prices seen during mid-year renewals to revert to their upward trajectory.

Hurricane Milton made landfall on the 9th of October in Sarasota county (Siesta Key) on the east coast of Florida as a Category 3 hurricane, bringing strong winds, heavy rainfall, tornadoes, and storm surges, resulting in loss of life, damage to property and infrastructure, and power outages.

“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.

The firm’s 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,” Morningstar DBRS added.

The firm also observed that reinsurers and P&C companies in its rated universe will likely see their combined ratios creep up, though the impact on solvency levels is not expected.

“As such, and assuming a relatively benign remainder of the Atlantic hurricane season, we do not anticipate any credit ratings pressure,” Morningstar DBRS noted.

The firm’s report continued, “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 stabilisation of reinsurance prices seen during mid-year renewals is likely to revert to their upward trajectory.”

Morningstar DBRS concluded, “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 materialise, 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.”

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