Hurricane Milton threatens tens of billions in insured losses, reinsurers also to be impacted: RBC Capital Markets

With its projected path and intensity, Hurricane Milton has the potential to become one of the most expensive storms to hit Florida, analysts at RBC Capital Markets, the investment banking arm of Royal Bank of Canada, predict.

Currently, Hurricane Milton remains a Category 4 storm within the Gulf of Mexico, having been downgraded from its previous Category 5 status.

According to projections made by the National Hurricane Center (NHC), Milton is anticipated to be one of the most powerful and economically detrimental hurricanes to make landfall in the western region of Florida.

Hurricane Milton is projected to make landfall in the Tampa area late Wednesday night or early Thursday morning as a Category 3 storm. The precise location of landfall is still uncertain, but the current NHC track indicates it will be somewhere near Tampa.

The potential for large insured losses exists as a result of the hurricane in a densely populated region of Florida, such as Tampa, with elevated insured property values, analysts highlight.
While newer building codes may alleviate some of the damage, older properties remain susceptible to significant losses.

“The track for Milton is rare but has happened before. For reference, the last hurricane to hit the Tampa area was in late October 1921 (as a Category 3) with an estimated 11 foot storm surge and 120 mph winds (there was also a hurricane that made landfall in the Tampa area in 1848),” RBC Capital Markets said.

Adding: “We note that a deviation in Milton’s track (even by 50 or 100 miles) could cause a notable shift in potential losses. Our view is that a track south of Tampa may potentially cause fewer insured losses and that could be a best-case scenario.

“We note that our coverage list has minimal exposure to Florida homeowners but losses could reside in reinsurance, commercial property, high net worth homes, auto, and other areas of commercial. Storm surge is a threat (expected to be over 10 feet in some impacted areas) and inland flooding is also an area to watch.”

Considering the magnitude and geographic scope of Milton’s potential landfall, it is anticipated that this event will result in substantial insured losses, potentially reaching tens of billions of dollars, RBC Capital Markets highlights.

This hurricane is also expected to be a big loss event for reinsurers (who have had fewer large losses in 2023 and 1H24).

“We expect most of our covered companies to have some loss exposure to Milton if the trajectory and strength continues into landfall (including those with reinsurance exposure or specialty/ E&S property books). Our initial take is for this to be a Q4 earnings event not a capital event for covered companies in what is typically a lighter cat loss period for the P&C sector,” RBC Capital Markets stated.

In addition to the initial damages expected on the coast when Hurricane Milton makes landfall, further losses inland are also anticipated. As of now, forecasts indicate that Milton will maintain its hurricane status as it makes its way across the Eastern part of the state.

Analysts note that numerous locations within the state of Florida have been constructed to endure the force of hurricanes. However, there remains the potential for significant losses in the event of a Category 1 or 2 Hurricane.

The most recent comparable storm to make landfall in Florida was Hurricane Ian, which struck the Southwestern region of the state as a Category 4 storm in late September 2022.

Hurricane Ian’s path was located to the south of Milton’s current tracking and ultimately resulted in insured losses amounting to $62 billion (in 2023 monetary value).

RBC Capital Markets concluded: “While it is early still to assess spillover loss impacts on the overall P&C insurance marketplace, Milton could at the very least result in some stabilisation in commercial property and property cat reinsurance pricing in our view (which has started to weaken in recent quarters).

“The bigger unknowns are potential impacts on the Florida insurance and homeowners market post Milton landfall following three hurricanes making landfall in the state this hurricane season.”

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