Small Track Changes Drive $70B+ Swing in Milton Insured Loss Estimates

Insured losses from Hurricane Milton could sit anywhere within a $70-plus-billion range extending from $9 billion to $85 billion, experts from CoreLogic said yesterday afternoon, at least nine hours before the exact point of landfall was known.

With Milton expected to hit as a Category 3 or 4 storm somewhere along Florida’s Gulf Coast late on Wednesday or early on Thursday, Oct. 10, Paul Brown, CoreLogic’s Director of Industry Solutions, said the point of landfall would be a critical factor that could shift ultimate insurance payouts by tens of billions of dollars.

CoreLogic’s stochastic model outputs also showed that insured loss ranges for a Category 4 hit would be double those for a Category 3 strike, he said during a midday webinar yesterday.

Later in the day, Milton ultimately made landfall near Siesta Key in Sarasota County at around 8 p.m. as a Category 3. The location, which is south of Tampa Bay, is a trajectory that CoreLogic executives were most focused on at the time of the webinar, suggesting insured loss numbers at the low end of the range of estimates they presented will play out.

During the webinar, Brown first shared CoreLogic’s pre-landfall estimates for an assumed Category 3, revealing a more than $30 billion difference between the low end of a range of estimates coinciding with trajectory putting landfall south of Central Tampa—$9 billion to $13 billion—and the high end of a $33 billion-$42 billion range for a path moving right across Tampa.

Putting the most likely scenario at the best-case “South of Tampa” track, Brown went on to reveal that bumping the intensity up from a Category 3 to a Category 4 would boost the $9 billion-$13 billion range up to $20 billion-$26 billion.

The worst case “across Tampa” Cat 4 scenario would produce the highest estimate of $85 billion, he said.

During a Q&A session, Moderator John Schneyer, the director of catastrophe response, asked Brown for his best guess given the track put out by the National Hurricane Center earlier in the day, prompting Brown to narrow the range to $15 billion-$20 billion—again focusing on the south of Tampa track.

Preceding Brown, Dr. Daniel Betten, director of forensic meteorology for CoreLogic, stressed the high level of uncertainty about the track that continued throughout the day, with the latest ensemble putting landfall between points just north of Sarasota all the way down to Port Charles.

While Betten noted that Milton is unprecedented in its location—”no hurricane that’s formed in the Western Gulf has made a major landfall on the western coast of Florida”—both Betten and Brown offered comparisons to prior Florida storms to give alternative assessments of potential losses.

“The Gulf of Mexico has a long history of Category 5 hurricanes reaching their peak and then making landfall at Category 2 or 3 [while] still maintaining some of those Category 5 impacts, Betten said, listing Hurricanes Ivan, Katrina and Rita as the ones that are etched in the minds of insurers. “Fortunately, the wind field size of Milton is much, much smaller—two to three times smaller than those storms,” he said, adding that he expected Milton’s storm surge would also fall below those earlier storms, which had maintained Category 5 storm surge level in spite of weakening.

Brown reviewed numbers associated with storms that hit near the location where Milton was headed: a 1921 hurricane that came in as a high Category 2 /low Category 3, which struck 25 miles Northwest of Tampa and a 1944 low Category 2 that passed over Sarasota and brushed east of Tampa. Private insured wind and surge losses for the 1921 event would be somewhere between $20 billion and $30 billion in current dollars, he said, putting the range for the 1944 event between $10 billion and $16 billion.

Inflating those losses into levels that would prevail for a full Category 3 storm, CoreLogic’s models would put those losses each in the $30 billion to $45 billion range, he reported.

More Wind Losses

Both men said storm surge and the interplay of the timing high tide added more question marks around levels of water losses—those insured by private insurers, the National Flood Insurance Program, as well as uninsured losses. But David Smith, senior director of Natural Hazard Modeling Solutions, said a key story of uninsured losses playing out for the most recent prior hurricane—Helene—isn’t likely to be repeated with Milton.

“One story with Helene is just the massive amount of inland flood losses that are contributing there. And the other piece that is very critical is how much of those losses are insured…We have had some events as Helene, and certainly going back to 2017, we had Hurricane Harvey, [which were] very largely inland flood events where very large percentages of the damage were not insured.”

“That’s less likely to be the case here. A greater share of the losses here is going to be insured,” he stated.

“This is going to be more similar to other events we’ve seen in Florida from [just] the point of view of the insurance coverage—because a lot of the loss contributors are most likely going to be coming from wind and also storm surge.” As for inland flood projections, “certainly locally there will be problems, but we’re not looking at this as being a major factor in this event,” he stated.

With projected Milton paths shifted further south than some early forecasts had indicated, “Orlando and environs may be spared the worst of the winds,” he added, noting that these areas would likely still receive significant rainfall.

Primary Insurers’ Cat Budgets Are Toast

Separately, more than eight hours before Milton’s landfall, S&P Global Ratings forecast that potential losses from Hurricane Milton could fully deplete the 2024 natural catastrophe budgets for rated U.S. property/casualty insurers, affecting underwriting margins and earnings.

In a report titled “Hurricane Milton: The Implications For Rated U.S. Insurers And Global Reinsurers,” the rating agency reported that the catastrophe budgets of 16 rated property/casualty insurers aggregates to around $40 billion, while year-to-date catastrophe losses have already reached $26 billion. (Editor’s Note: CoreLogic’s Cat 4 “South of Central Tampa” estimates would deplete the budgets)

“Given that many primary insurers are already close to 2024 catastrophe budgets based on first-half catastrophe losses, we believe the potential losses from Hurricane Milton, combined with other weather-related losses so far, could fully exhaust their 2024 catastrophe budgets. This will affect underwriting margins and earnings but not capitalization,” the report said, putting year-to-date pre-tax profits at around coming in at roughly $69 billion.

“While the magnitude of insured losses remains unknown, most rated U.S. primary P/C insurers entered 2024 with substantial capital buffers at the 99.99 percent confidence level under our risk-based capital adequacy model,” the report said, indicating that capitalization is expected to remain stable.

In contrast to the earnings pressures of primary insurers, S&P said there is ample room in reinsurers’ catastrophe budgets to keep earnings intact.

“The reinsurance sector’s expected 2024 combined earnings of $44.8 billion, and its catastrophe budget of $19.2 billion, provide a substantial buffer of about $64 billion before any catastrophe losses affect its capital,” S&P said, reporting on the results of 19 rated reinsurers. “While capital levels and risk appetites can vary among individual reinsurers, the sector’s overall resiliency has notably increased in recent years,” S&P’s report said.

Reinsurance Market Softening On Hold

While S&P analysts didn’t comment on the implications of Milton losses on reinsurance market conditions, AM Best noted that heavy Milton losses will trigger many property-catastrophe reinsurance treaties in advance of reinsurance renewals being priced for 2025. That will putting any market softening on hold that might have otherwise been in the cards, Best’s analysts believe.

“After a relatively calm renewal season in 2024—especially compared with the far more tense January 2023 renewal season, which was marked by rate increases, higher retentions demanded of primary insurers, and constrained capacity—Hurricane Milton will likely stall any softening of price and terms in the property reinsurance market but will not likely result in increased hardening,” Best analysts wrote in a commentary titled “Hurricane Milton to Pose Severe Challenge for Florida Property Insurers and Reinsurers.”

“With no chance of softening property reinsurance on the horizon, and potential capital losses stemming from Hurricane Milton, some insurers may find it difficult to adequately support their current exposure levels,” said the report, which focused mainly on the possible local insolvencies, and declining capital among insurers concentrated in Florida and repeating many forecasts about Florida specialists they wrote about Hurricane Helene’s implications.

Offering another reinsurance-related prediction, the latest AM Best report said that the combination of losses from Hurricanes Helene and Milton “could breach the reinsurance program towers FEMA secured for the NFIP, along with coverage from in-force catastrophe bonds.”