Hurricane Milton could cause losses of $60 billion to the global insurance sector, causing reinsurance prices to rise in 2025, according to analysts.
Hurricane Milton could cause losses of $60 billion to the global insurance sector, leading to a rise in reinsurance prices in 2025 that could boost the shares of some insurance companies, according to analysts at RBC Capital.
The Category 5 hurricane will make landfall on Florida's west coast late Wednesday or early Thursday and is potentially one of the most destructive to ever hit the region, which is still recovering from the devastation caused by Hurricane Helene. less than two weeks ago.
More than a million people in coastal areas have evacuation orders.
Losses of $60 billion would be similar to those from Hurricane Ian, which hit Florida in 2022, RBC analysts said Wednesday, adding that this estimate for Milton should be “very manageable” for the insurance industry.
“The market seems to be pricing in an impact similar to that of Hurricane Ian, of $60 billion in losses for the sector in 2022,” RBC analysts noted.
Ian was the second-largest insured loss from a hurricane, after Hurricane Katrina in 2005, according to the Swiss Re Institute, which conducts insurance studies.
Insurers and reinsurers — which insure insurers — have responded to rising losses from natural catastrophes in recent years by raising rates and excluding higher-risk business.
“Improved conditions for reinsurance contracts, greater diversification of profits and increased reserves should put the sector in a better position than before,” RBC analysts say in a note.
Barclays analysts estimated this week that insured losses from the hurricane could exceed $50 billion.
Shares in global reinsurers Swiss Re SRENH.S and Munich Re MUVGn.DE and Lloyd's of London (RIC:RIC:SOLYD.UL) companies Beazley BEZG.L, Hiscox HSX.L and Lancashire LRE.L have fallen this week. Swiss Re, Munich Re and Beazley have been trading at all-time highs thanks to their strong gains.
“It's only a matter of time before stocks regain lost ground with the prospect of pricing tightening at upcoming (policy) renewals,” RBC added.
Reinsurers set prices for many insurance contracts on January 1.
Analysts at Peel Hunt said Wednesday that a major hurricane making landfall in Tampa Bay and moving west across the Florida peninsula would be similar to a realistic catastrophe scenario floated by Lloyd's earlier this year, which forecast losses of $134 billion for the insurance sector.
Lloyd's maintains a series of mandatory “Realistic Catastrophe Scenarios” to stress test both individual syndicates and the market as a whole. Scenarios are reviewed periodically to ensure that they represent significant catastrophic risks.