Potential economic and insured losses from Hurricane Milton remain highly uncertain. Much will depend on its landfall location and its magnitude. Milton could cause significant wind damage, heavy rainfall, substantial storm surges, and floods.

The U.S. National Hurricane Center predicts it will make landfall around the Tampa Bay region late on Oct. 9 or in the early hours of Oct. 10. The hurricane has fluctuated in intensity and is currently rated Category 5. This is the second major hurricane to hit the U.S. in two weeks following Hurricane Helene (see "U.S. Insurers' Earnings Could Take A Hit From Hurricane Helene," Oct. 3, 2024).

Given the uncertainty as to the magnitude of losses, we are reviewing various industry-insured-loss scenarios and their potential impact on U.S. primary insurers and global reinsurers. For reference, Hurricane Ian, which made landfall as a Category 4 hurricane in Florida in 2022, resulted in industry-insured losses of about $60 billion.

Hurricane Milton Losses Could Fully Deplete U.S. P/C Insurers' 2024 Catastrophe Budgets

As insurer of last resort, Citizens Property Insurance Corp. (not rated) will absorb a higher proportion of insured property losses relative to other insurers in the state. For our rated insurers, direct property premiums (homeowners and commercial) in Florida represent just 1.1% of total U.S. P/C premiums written in 2023. We assume our rated insurers' exposure to property business in Florida is less than 33% of their total insurance business in the state and, on average, their exposure is more to residential than to commercial. State-sponsored Citizens was Florida's largest homeowners insurer by premiums written in 2023. In the past five years, Citizens' market share in the state's personal property insurance market has jumped significantly, to 18.6% in 2023 from 5.2% in 2019, to become the tenth largest insurance writer for homeowners in the U.S.

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% confidence level under our risk-based capital adequacy model. In first-half 2024, capital and pre-tax operating incomes have mostly remained strong. 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.

Table 1

Chart 1

Global Reinsurers' Losses Should Stay Within 2024 Catastrophe Budgets

Milton is poised to be a significant event for global reinsurance this year. In our view, global reinsurers face substantial exposure to the damage it could cause. The key question is whether potential losses will stay within reinsurers' annual natural catastrophe budgets or annual earnings, or whether they will escalate and become a capital event.

At this stage we think the impact from Hurricane Milton, combined with natural catastrophe losses incurred so far in 2024, could still fall within reinsurers' catastrophe budgets.

In 2024, the global insurance sector again faces a highly active natural catastrophe environment. During the first half of the year, global insured losses from natural catastrophes soared to about $60 billion, significantly higher than the 10-year average of $37 billion, as reported by Swiss Re Institute. Much of these losses, around 70%, stemmed from severe convective storms predominantly in the U.S. First-half events also included the earthquake in Japan, in January, and devastating floods in the United Arab Emirates, Europe, and Brazil.

Milton, following closely on the heels of Helene, will likely significantly increase global reinsurers' claims payouts in the second half of 2024. This period has also been marked by other notable events, including Hurricanes Beryl, Debby, and Francine, as well as wildfires and hailstorms in Canada and floods in Central and Eastern Europe (see "Central European Insurers' Financial Strength Is A Barrage Against Flood Damage," Sept. 24, 2024).

Due to structural changes in reinsurance programs and fewer tail events in 2023, the top-19 rated global reinsurers held only about 10% of the market share for global insured natural catastrophe losses. We assume a similar market share for the first half of this year. However, given Milton's potential scale, we expect this market share will approach the long-term average of around 20%. If Milton's insured losses are contained to just under $50 billion, the reinsurance sector could yet remain within its annual catastrophe budget (see chart 2).

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. While capital levels and risk appetites can vary among individual reinsurers, the sector's overall resiliency has notably increased in recent years (see "Reinsurers Show Growing Appetite For Natural Catastrophe Risks," Aug. 30, 2024).

Based on our annual natural catastrophe survey, we assess that the net exposure for the top-19 reinsurers in the exposed zone 3 for one-in-10-year to one-in-500-year return periods lies between $6 billion and $46 billion (see table 2). However, zone 3 in our annual survey includes an aggregated number for wind exposure in multiple regions including Florida, Georgia, North Carolina, and South Carolina.

Chart 2

Table 2

We think reinsurers are approaching their annual natural catastrophe budgets. Whether budgets are fully consumed or exceeded will depend on the development of global natural catastrophes for the remainder of the year.

Despite the challenges, we maintain our base-case earnings scenario for the reinsurance sector. We forecast a combined ratio of 92%-96%, which includes a natural catastrophe load of 8-10 percentage points, and a return on equity in the low to mid-teens in 2024-2025. We also forecast that the sector will benefit from rising investment income, with expected net investment yields of 3.5%-4.0% during this period. Furthermore, reinsurers entered 2024 with robust capitalization. In aggregate, capital adequacy for the top 19 was redundant under our risk-based capital model: 6.1% at the 99.99% confidence level at year-end 2023.

Table 3

Related Research

• U.S. Insurers' Earnings Could Take A Hit From Hurricane Helene, Oct. 3, 2024
• Central European Insurers' Financial Strength Is A Barrage Against Flood Damage, Sept. 24, 2024
• Insurers Focus On Underwriting To Tackle Climate Risk, Sept. 10, 2024
• Global Reinsurers Must Maintain Discipline To Cement Strong Performance Amid Casualty Risks, Sept. 3, 2024
• Record Weather-Related Losses Hit U.S. Homeowners Insurers And Pose Challenges In Estimating Catastrophe Risk Charges, Sept. 3, 2024
• Reinsurers Show Growing Appetite For Natural Catastrophe Risks, Aug. 30, 2024
• Reinsurers Dodge Severe Convective Storm Losses Amid Rising Threats, Aug. 7, 2024