Billions in Losses from Hurricane Milton: Impacts on the Insurance Sector
11:59 09/10/2024 - PesoMXN.com
Hurricane Milton could result in damages of up to $100 billion for insurance companies worldwide, potentially triggering an increase in reinsurance costs by 2025, which may benefit certain stocks in the insurance sector, according to experts at RBC Capital. This Category 5 hurricane is expected to hit the west coast of Florida between Wednesday night and Thursday morning, and it looks to be one of the most devastating storms in the region's history, which is still recovering from the damage caused by Hurricane Helene less than two weeks ago.
If Milton makes landfall directly in the densely populated Tampa area, insured losses could range between $60 billion and $100 billion, according to analysts at Morningstar DBRS. If losses reach $100 billion, Milton would be compared to Hurricane Katrina in 2005, although it is also estimated that the losses will be "notable but not catastrophic." Katrina was the hurricane that imposed the greatest financial burden on the insurance industry. On the other hand, a loss of $60 billion would resemble the damages caused by Hurricane Ian, which hit Florida in 2022, state RBC analysts, who believe that this projection for Milton is "very manageable" for the sector. "The market is anticipating an effect similar to that of Hurricane Ian, with losses of $60 billion for the sector in 2022," said RBC analysts. Due to the increase in losses from natural disasters in recent years, insurers and reinsurers—who insure the insurers—have responded by raising rates and dropping high-risk business. "The improvement in reinsurance contract conditions, greater diversification of revenues, and an increase in reserves put the sector in a stronger position than before," RBC analysts said in a statement. Meanwhile, Barclays analysts projected this week that insured losses from the hurricane could exceed $50 billion.
The situation for the insurance sector, in light of a potential significant impact from hurricanes like Milton, underscores the importance of having solid risk management models. The increase in rates and diversification are essential strategies not only to cover losses but also to ensure financial sustainability in the face of natural disasters, which appear to be more frequent and severe today.
