Milton threatens to reverse direction of property cat renewal

Hurricane Milton’s rapid intensification on Monday to a Category 5 storm with Tampa Bay in its sights was met with a predictable sell-off of Florida carrier stocks as well as talk of a sudden shift in dynamics in the property cat reinsurance market ahead of 2025 renewals.

The relative calm of the first four months of the Atlantic hurricane season led to expectations of moderate softening at the 1 January property cat reinsurance renewal in a continuation of the conditions seen through 2024 after last year’s step change in rates and retentions.

Despite the recent devastating impact from Hurricane Helene – especially inland – as a medium-sized insured loss which is expected to be largely retained by insurers, it served as more of a reminder to the market of the potential for a major loss.

But as Hurricane Milton continued its advance across the Gulf of Mexico threatening a worst-case scenario impact on Florida’s west coast, with “highest ever” storm surge warnings for Tampa Bay, the tone of the conversation was already quickly changing.

By Tuesday morning the storm had weakened to Category 4 with its forecast landfall a little further south, though it still has the potential to make a direct hit on the Tampa Bay area.

Tampa Bay has had a number of near misses in recent years as several storms have initially looked to be on course for a close or direct hit, before shifting track as they neared land and instead impacting less populous areas, so there is plenty of scope for a repeat with Milton.

Even quite a minor shift away from the worst-case scenario – viewed as a landfall just north of the mouth of Tampa Bay – would have a significant impact on the level of expected insured losses, potentially reducing the quantum by tens of billions of dollars.

This was the case with Hurricane Ian two years ago, which still ended up being one of largest storm losses for insurers at close to $50bn but could have been much more costly had its worst impacts not missed Tampa Bay.

A major hurricane landfall in the Tampa Bay region has long been a concern of the (re)insurance sector.

Lloyd’s holds a realistic disaster scenario for a $134bn industry loss resulting from a hurricane that makes landfall in Pinellas County, which includes one half of Tampa Bay, alongside the cities of St Petersburg and Clearwater.

From a reinsurance loss perspective, any Florida hurricane that impacts the homeowners sector is likely to result in a greater share of the burden being ceded to reinsurers, because of the relatively low attachment points of excess of loss towers for domestic carriers in the Sunshine State.

That means even for what is forecast to be a modest industry loss from Helene, there is an expectation that cat covers will attach for insurers with portfolio exposures in the Big Bend region where the storm struck.

A major hurricane loss for Florida would also be a big test for the state’s homeowners insurance market.

After years of underwriting losses driven by litigated claims there has been a return to some degree of optimism in the sector following game-changing legislative reforms, with Citizens in depopulation mode and new capital having entered in the form of start-ups, aided by a stabilization of the reinsurance market.

A sizable hit from Milton that brings many thousands of claims – and the potential for wind versus water coverage issues – would be the first real trial of the new framework and renewed stability.

And if Milton is anything close to the worst-case scenario for Tampa Bay, it would also bring major losses to a commercial property market that had been sliding into softening territory.

As with reinsurance market dynamics, that would almost certainly change the trajectory, especially for an E&S property segment that is heavy on Florida exposure.

In our APCIA Day 3 issue Comment article Tuesday we looked at the possibility that Milton could shift the psychology of the property cat market by bringing back fear to underwriters...