If Hurricane Helene was a mini test for the Florida market, Hurricane Milton – based on its current track – will be the real one.
Milton is projected to make landfall in the next 24 hours in the populated Tampa Bay region – the worst-case scenario for a Florida landfall for many sources – less than two weeks after Hurricane Helene.
In the latest NHC update, the storm’s landfall is headed for Sarasota, south of the worst-case track and remaining well south of Orlando inland, with landfall projected at Category 4 speed.
Pre-landfall, industry estimates are wide-ranging and could result in drastically different outcomes for Florida (re)insurers as the losses will be highly sensitive to the landfall site, particularly given Milton’s small size. That said, most sources are pointing to at least a $50bn+ event.
The most extreme scenarios involving a Category 4 or above hit to Tampa with a path that takes the storm over Orlando would extract a loss toll in excess of $100bn.
For Florida insurers, there is a sweet spot that could be attained from a mid-scale loss, in which reinsurers take the bulk of the losses without threatening the tops of their towers, or reinsurance pricing too heavily. However, even a retention loss on top of prior attritional claims could send carriers into loss-making territory and strain capital further.
While not a major capital threat, insolvencies are still possible at this level for under-insured Florida homeowners’ insurers with outsized market share, and the Florida Cat Fund would be in trouble.
Of note, at this level, while the state’s insurer-of-last-resort, Citizens may not be severely impaired, it would definitely see an influx of claims – given its exposure in the landfall region.
That said, the upper end losses would pose an existential threat to the domestics, reinsurers, as well as Citizens and the Cat Fund. It would be the worst-case scenario that the industry escaped at the last minute with Hurricane Ian.
Also, at the top end, it is possible that cat bond investors – despite sitting at higher-attaching risk levels – will feel a real impact.
In either scenario, this will be a Florida Hurricane Catastrophe Fund (FHCF) event, and insurers will likely face assessments to replenish the FHCF, as it would need to issue post-event bonds once it has run through its $6.9bn fund balance, which would occur at around a $19bn ground-up loss or 1-in-15-year event for Florida homeowners.
A Florida residential loss of around $42bn would substantially erode $15bn of its $17bn coverage.
Citizens’ exposure
Sources widely noted that Citizens holds a significant market share in the Tampa Bay region and could see a significant amount of claims from the storm.
Outside Miami and the southeast region, the carrier is most exposed in Pinellas County, at around $53bn, which represents the worst-case landfall scenario for the industry.
However, on the southern side of Tampa Bay, the exposures at risk are lower, like Manatee County, which is closer to $9bn or Sarasota County, at around $18bn.
Citizens also has $24bn of exposure on the eastern coast in Brevard County, where Milton is forecast to pass through on its way over the peninsula.
The public carrier's reinsurers provide $3.6bn of limit to the firm across a traditional reinsurance program of just under $2bn and $1.6bn in cat bonds. A small $630mn sum triggers lower-level losses in line with the Cat Fund, but the bulk sits above the Cat Fund coverage.
The cat bond coverage runs from $8.8bn of losses to Citizens, up to $14.3bn, while the traditional reinsurance runs in parallel but exhausts around $1bn higher.
Major providers include Nephila Capital, Aeolus, DE Shaw, Swiss Re, Munich Re and Ariel Re.
Citizens would first levy a surcharge on its policyholders if its losses exceed $14.4bn, a 1-in-74-year hurricane.
The second event complication
Florida consultant Lisa Miller’s blog flagged the hazard of detritus left by Helene as a factor to be aware of, and one which state officials were frantically trying to clear to minimize Milton damage in the days ahead of the storm’s landfall.
Several other sources have also commented on the double-storm issue as a reason to expect higher claims. Post-event inflation is generally an issue, as well as the debris risk in exacerbating damage. Labor and materials will all become more costly and a source of competition.
More generally, as a storm following closely upon Helene’s heels, Milton will create complications for claims assigners attempting to determine which of the events a loss can be ascribed to.
Even though Milton was tracking a good deal further south than Helene, Helene’s large size could still pose a challenge here for the claims-handling process.
In theory, insurers would have to take a second retention, (or a third in the case of carriers impacted by Hurricane Debby), but some losses could simply be compounded onto the larger damage tally from Milton and fall to reinsurers.
In addition, a second major loss in the local area will drive up loss adjustment expenses (LAE), with one source suggesting levels could reach those recorded during Hurricane Irma.
As an example of how high LAE could spike, levels ran at averages of around 20% or even higher during Irma in 2017, as the breadth of that storm also became problematic for claims-handling resource.
This compared to historic levels which range from 5% to 15% but are usually between 8% and 10%.
E&S market
Sources noted that Milton is expected to be the first major hurricane to test E&S carriers in Florida following the dislocation in 2022.
As admitted carriers have pulled back on their exposure in Florida in recent years, namely from Florida coastal properties, E&S carriers have stepped in to fill the void.
Just last week, the Florida surplus lines stamping office reported that Florida’s YoY premium growth rate was up 14.5% in September, after dropping 3.8% in August and rising 20.7% in July.
The state posted a 10.6% rise for the three months ending in September, compared with an increase of 1% for the same period ending in August, and 5.8% in July.
Sources also noted that Lloyd’s has been particularly aggressive in taking up market share in Florida’s surplus lines market in the recent past. As evidenced below, the marketplace wrote 22% of all commercial property surplus lines premiums on Florida’s west coast over the last year, and 23% of all homeowners’ surplus lines business.
Comparable tracks
The historic parallels in the region highlight the variability of outcomes that could be in play. Some sources have used Ian as a comparison example, noting that Ian made landfall as a large, strong Category 4 storm and stalled over Fort Myers.
They caveated that Milton is a smaller storm and expected to move quickly through the state and will likely make landfall in a more densely populated area. Tampa, at ~400,000, has roughly four times the population of Fort Myers.
Meanwhile, others used Hurricane Charley to compare in size, speed and potential strength, but added that the storm occurred 20 years ago, and the Florida landscape has changed dramatically since then.
“Almost the entirety of Charley could fit inside the eyewall of Ian,” one source noted.
Sources also commented that the wind vs. water debate seen during Ian will only intensify with Milton, given its location and how Helene occurred right before.
They noted that the closer Milton hits to Tampa, the more flood losses will make up the proportion of total storm losses – especially considering the up to 15 feet of storm surge expected.
“The flood losses will be what we saw in Helene multiplied many times over,” one source said.
Flood insurance is heavily under-utilized in Florida residential business, with Neptune Flood CEO Trevor Burgess estimating roughly 13% of the market has coverage for the peril, on both the private and public side.
Earlier yesterday, Skytek noted that most offshore assets in the area are located to the north of Tampa.
However, Milton could impact a cluster of holiday resorts and hotels directly or indirectly in the line of hurricane-force winds, intense rainfall and storm surges.
Additionally, there are 11 cruise ships valued at $2.7bn within the hurricane's cone, with three currently departing to evade the storm.