A wide cone of uncertainty surrounds insurance experts’ pre-landfall predictions about the state of the industry that will prevail in the aftermath of Hurricane Milton, with most viewing it as a $20 billion-plus loss event.
Amid the volumes of commentary from risk modelers and insurance experts in advance of the storm’s Florida landfall, forecasts included everything from the prospect of higher prices for property-catastrophe reinsurance to the end of the state-backed insurance system and an availability crisis that brings the federal government into the Florida insurance market, if only temporarily.
Analysts for Keefe, Bruyette & Woods were among those to comment on potential reinsurance market impacts in research notes published on Monday and Tuesday, indicating that insurance industry losses would likely be well above $10 billion. The more extreme impacts were contemplated by Ian Gutterman, a longtime investor and industry analyst, in a blog post titled “Hurricane Milton–The End of the Florida Insurance Experiment?” published on Tuesday.
Gutterman, founder and CEO of Informed Group Inc., can envision industry insured loss scenarios as high as $50 billion and $100 billion. Noting that a total coming in under $25 billion “seems optimistic,” Gutterman also predicted more insolvencies of some thinly capitalized Florida insurers, the end of the Florida Hurricane Catastrophe Fund, and a “meaningfully impaired” but surviving insurer of last resort, Citizens Property Insurance Corp.
Between those extremes, Andrew Siffert, senior meteorologist for specialist insurance and reinsurance broker BMS Group, wrote, “Milton could reshape the insurance market in Florida for years to come,” in a BMS Tropical Update published online yesterday.
“It is safe to say this will likely be at least a $20B dollar event. This is solely based on a review of the low end of the catastrophic modeling guidance and some of the historical analogs like the 1921 Tarpon Spring/Tampa Bay Hurricane that today would cause over $25B in insurance industry losses,” he wrote.
While there were many more pre-landfall analyses delivered to Carrier Management’s editors’ email inboxes this week—from Moody’s, Howden Re, Acrisure and Guy Carpenter, among others—we limit this summary to highlights of the remarks of the KBW analysts, Gutterman and Siffert, offering what seems like a representative sample of what insurance experts were saying and thinking as Milton approached the U.S.
A Top-10 U.S. Weather Event
All commenters noted the uncertain trajectory and landfall strength at various times on Tuesday, but a common assumption is that Milton will make landfall as a Category 3 or 4 storm close enough to Tampa to produce property damage and economic impacts of historic proportions.
“Currently, the Sarasota and Tampa areas are bracing for what could be one of the top 10 most destructive weather events in U.S. history,” wrote Siffert.
A direct landfall on Tampa at the Category 4 level of the Saffir-Simpson Scale would result in losses similar to those from two major storms in the 1920s—the 1926 Miami hurricane or the 1928 Lake Okeechobee hurricane—or a more recent one remembered by some insurance professionals in practice today, Hurricane Katrina in 2005.
The outcome, he said, will depend on the track and intensity at landfall, but at the time of his writing, “it is likely that insurance losses will be at least $25B in the best possible forecast scenario if Milton falls apart due to shear and dry air before landfall,” Siffert indicated.
Among the possibilities is that Milton makes landfall as a Category 3 instead, he noted, reminding readers that recent storms like Rita (2005), Katrina (2005) and Ike (2008) were all large, powerful hurricanes like Milton in the Gulf of Mexico. They weakened before landfall but still caused tens of billions in insurance industry losses, he said.
“Milton will be no different as the wind field will expand in size, and the system could become asymmetric,” he said noting that the National Hurricane Center’s official forecast shows that hurricane and tropical-storm-force winds will roughly double in size when Milton makes landfall.
“The heaviest rain will be along the north side of the storm track, which could result in flooding problems,” he said.
Like other meteorologists, Siffert referred to the changes that have already happened with Milton— its rapid intensification from a Category 1 to Category 4 storm in just four hours on Monday, later strengthening to a Category 5, and a change known as an “eyewall replacement cycle.”
(Note: The Weather Channel defines “eyewall replacement cycle” as a “process seen primarily in more intense tropical cyclones, in which outer rainbands organize into a large ring of thunderstorms that contracts inward, choking off the inflow to the original, smaller eyewall and eventually replacing it.” According to the Weather Channel description, “Tropical cyclones tend to weaken a bit during the formation of the second outer eyewall, but then intensify again as the new outer eyewall contracts inward. The net effect of this process makes these storms’ winds more expansive.”)
Siffert noted that eyewall replacement is common in strong hurricanes, often causing peak winds to fluctuate while the wind field generally expands. “This wind field expansion will be critical to the insurance impacts upon landfall,” he wrote.
Working to keep a lid on wind losses are building codes, the BMS Tropical Update suggests, reporting that newer buildings in the Tampa Bay region must withstand wind speeds ranging from 140 mph to 160 mph, among other requirements. While older homes are not subject to the same requirements, “peak gusts of 110-115 mph, inland areas of 90-100 mph, and along the east coast of Florida 60-75 mph should not destroy well-built homes,” Siffert’s update said. While such winds will compromise roofs and cause structural damage, “most roofs/walls will remain in place, with the exception of manufactured homes, specifically the older ones.”
Still, downed trees blocking roads and knocking out power are an issue familiar to insurers from recent events, as is storm surge, which Siffert highlighted as a key determinant of the level of insurance losses. Siffert said a worst-case scenario for storm surge would involve Milton making landfall as a major hurricane along the Pinellas Peninsula, on the western boundary of Tampa Bay. “The last time this happened was the 1921 Tampa Bay hurricane, which made landfall as a Category 3 hurricane and brought 10-12 feet of storm surge flooding to the city” of Tampa, he reported.
If landfall is south of Tampa, the storm surge will be significantly reduced for the Bay, he said. “[I]nstead of water rushing in, the water would rush out of the bay.”
Still, he reminded readers that different forecasts of Milton’s path and strength could imperil the northeast coast of Florida and the coasts of Georgia and South Carolina with storm surge impacts.
“Furthermore, Milton’s impacts are likely to stretch far beyond the immediate coastline, with inland areas like Orlando also at risk,” he wrote in a LinkedIn post summarizing the tropical update.
He closed the BMS update with a discussion of complicating factors, including watercraft destruction, environmental hazards as water picks up debris left over from Hurricanes Helene and the challenges for claims adjusters who must deal with the overlapping impacts of two events back to back.
“While Helene was primarily a storm surge event, the additional time for adjusters to evaluate potential water-only claims has highlighted complications. If a structure experiences both water and wind damage, this can complicate the claims process significantly, ultimately increasing the overall loss claims expenses,” he wrote.
A final complication: “This could become a super-demand surge event,” he wrote, referring to the potential for skyrocketing prices of goods and services needed to repair and rebuild.
How the Reinsurance Market Will React
“We think ‘demand surge’ from Hurricane Milton could raise the cost of construction labor and materials in the Southeastern U.S., boosting prior catastrophe events’ ultimate insured losses,” noted KBW analysts in a research note on Tuesday, referring to the fact that several catastrophe modelers have already recently raised their estimated Hurricane Helene insured losses to a little over $10 billion.
As for Milton, noting the tremendous amount of uncertainty over Milton’s ultimate path, KBW not only predicted that a landfall impacting Tampa or other densely-populated parts of Florida could push Milton’s insured losses well above $10 billion, but also forecast that reinsurers as a group could “bear a higher percentage of Milton losses than of previous 2024 weather events.” That’s because many Florida-focused property carriers buy relatively low attachment points, KBW reported in research notes published on Monday and Tuesday.
KBW analysts commented that the higher reinsurance participation in Milton could quell some of the broker chatter that crescendoed in and around the Rendez-Vous de Septembre in Monte Carlo about the declining “relevance” of reinsurers who haven’t been sharing in lower-layer losses of events like Midwest convective storms following attachment point hikes dating back to January 2023.
“That doesn’t mean that the pressure [for lower attachments] will stop, of course, but it should bolster the reinsurers’ collective resolve,” KBW analysts commented in their Tuesday research note, which includes a chart listing publicly traded primary insurers along with 2023 direct written premiums for cat-exposed auto and non-auto lines in Florida. The chart ranks Berkshire, Progressive and Allstate at the top.
Importantly, KBW analysts believe that “material reinsured Milton losses could change the trajectory of 2025 property reinsurance pricing,” which they had pegged at mid-single-digit decreases coming out of Monte Carlo.
Turning their attention to the implications of a scenario in which primary insurers retain significant losses from Milton, they note that this could “highlight the weaknesses of Florida’s current reliance on numerous relatively small insurers plus Citizens…”
“We see this situation—in which many of the nation’s largest property insurers maintain disproportionately low exposure to Florida—as ultimately unsustainable,” the KBW analysts stated, noting that a combination of retained storm losses and higher reinsurance costs could threaten the solvency of state-focused insurers. That, in turn, could force Florida regulators to allow price hikes from larger carriers—pushing rates to the levels that larger carriers deem to be adequate.
‘House of Cards Collapses’
Or the federal government could step in to “nationalize the risk of Florida homeowners,” said Gutterman, suggesting the unappealing solution to a market collapse that could unfold in the wake of Milton. An alternative market fix is “to let carriers charge a fair price so that national carriers will return,” he said, before offering the more dire conclusion.
Like the KBW analysts, Gutterman believes reinsurance pricing will go up but not “as much as people would guess,” he wrote. “We are already in the vicinity of all-time highs. So, if it goes up too much, large clients will choose to retain more,” he explained.
Before delivering either conclusion, the former analyst, who has spent many years researching hurricane risks, gave his take on immediate storm impacts. “A Cat 5 could put downtown Tampa up to 30 feet under water,” he noted. “This won’t be that bad, but it could certainly be half that. That would be enough to probably create commercial losses as big, or even bigger, than the residential claims,” he wrote.
Going on to discuss the prospects of a big loss in Sarasota, or of Orlando facing losses worse than those from Hurricane Charley—and also sharing some analogies to other prior storms, Gutterman offered the worst-case scenario in terms of loss potential: “A direct hit on Tampa with a secondary big hit on Orlando could approach (and even exceed) $100B.”
In short, “this could be the worst insured loss in industry history,” he wrote.
A partial hit on Tampa or other paths put his forecast at the upper end of a $25 billion to $50 billion range, “especially if Orlando gets hit,” he said, going on to describe aggregation risks for some Florida home insurers who have attempted to lower reinsurance bills by covering peak zones, say in Tampa, assuming that non-peaks like Orlando or Daytona won’t get hit by the same storm.
A $50 billion insured event will spell failures for some Florida homeowners insurers—and for the FHCF, he believes. “Their own documents show they blow through all their claims-paying resources at $40+B industry ($25B homeowners) loss which means they can’t pay off their debt,” he said, referring to FHCF.
Gutterman went on to predict that a wounded-but-surviving Citizens “won’t have the capital to take new customers,” and that national players won’t enter the market to replace bankrupt Florida insurers unless they can charge adequate rates.
Another option would be “something dramatic,” such as forcing “non-homeowners insurers to backstop Citizens, either through reinsurance or by agreeing to take out policies,” he said, stressing that he wasn’t supporting that idea by laying it out.
Ending with his assessment of potential “public policy ramifications” of the collapse of a Florida insurance system that he described as “a house of cards,” Gutterman said, “As we approach next June and homeowners can’t find insurance, it becomes a crisis that could well bring in the Federal government, at least on a temporary basis.”
“The truth is nationalizing the risk of Florida homeowners creates a whole new set of problems and is not a good solution, but it could happen,” he said, urging the industry to come up with a better solution for Florida that they can sell to politicians.
