Analysts within the J.P. Morgan European equity research team have said that if hurricane Milton’s industry impact is available in between $20 billion and $40 billion, they “don’t see Milton driving a reinsurance market turn” in 2025.
Estimates suggest hurricane Milton’s costs for the insurance and reinsurance industry are coming in lower than the market had initially feared.
Across all estimates seen and picked up by Artemis, the range is from almost $25 billion to $45 billion, with a mid-point of $35 billion and excluding losses to the NFIP where it’s broken out in those who include it, the mid-point comes all the way down to $34 billion right now.
Across the leading catastrophe risk modellers, the estimate mid-point is just $32 billion, while if we try and extract the NFIP losses from the one cat risk modeller estimate that included them, the mid-point average industry loss estimate for hurricane Milton falls to $31 billion.
Having similarly analysed loss estimates and spoken with investors across the reinsurance market, the J.P. Morgan equity analyst research team say, “The storm got here in at less expensive levels than perhaps feared but remains to be more likely to be a costly event, in our view.
“Nonetheless, we don’t see Milton at $20-$40bn levels changing the dynamics within the reinsurance market heading into 2025.”
The analysts explain that major reinsurance firms are making strong returns on equity and Milton won’t dent that significantly it now seems.
“Reinsurance market turns have tended to occur following periods of poor profitability for the market or particular stresses in individual years,” they explain.
Adding that, “Even when we assume that Hurricane Milton will drive estimates down in 2024E, the industry remains to be making excellent returns in comparison with the past. In consequence, we see little impetus for the market to show or harden further given these strong levels of profitability; we imagine the response may need been different if the storm had produced more material industry level losses ($70-80bn+).”
The J.P. Morgan analysts say that looking back to the reinsurance renewals of 2013 might provide some idea of what to anticipate in 2025.
Explaining, “We imagine that the present market conditions in reinsurance are paying homage to late 2012 ahead of the 2013 January renewals. At the tip of October 2012, Hurricane Sandy struck and remains to be the fifth-largest insured lack of all time, with most management teams expecting that prices would move up barely on the renewals. Nonetheless, looking back at what happened, prices reduced 0.5ppt based on the Guy Carpenter rate-on-line index despite expectations out there. We see the present market with healthy profitability and powerful levels of capital being similar in some ways.”
Interestingly, the analysts are actually differing barely with reinsurance brokers, as the foremost firms have all acknowledged that property catastrophe pricing is more likely to prove flatter now, at January 2025, than it might have if Milton had not occurred. Here’s one example from our article on MMC / Guy Carpenter from yesterday.
The analysts state, “Despite the storm being less damaging than feared, there was a narrative of Hurricane Milton changing the market dynamic towards flatter renewals versus our previous expectation of down mid-single digits,” occurring so as to add that, “we don’t see this as a probable scenario at this point within the yr.”
It’s perhaps not a lot that rates may harden on the back of hurricane Milton, but more that reinsurance and insurance-linked securities (ILS) capital providers have had one other relatively significant scare that has again demonstrated that capital-eroding catastrophe events are each possible and more likely to occur.
This may make custodians of capital much more motivated to carry onto pricing levels we currently see out there. But, perhaps more importantly, the way in which losses will fall from hurricane Milton will even provide significant impetus for capital providers to carry onto attachments and terms for longer.
From what we’re hearing from industry sources right now, if hurricane Milton proves to be a roughly $30 billion to $40 billion industry loss for the private insurance and reinsurance market, then reinsurance and retrocessional capital, including catastrophe bonds and the ILS market, is likely to be expected to take anywhere from 15% to almost 25% of the loss.
At which levels, most views on risk-sharing would deem that to be about right, for a loss event of the quantum of Milton.
As industry losses rise, the proportion that’s ceded to reinsurance, retro and ILS capital increases, with very large events even capable of see more capital from the reinsurance tiers, than primary capital, exposed.
There may be after all the situation affected by hurricane Milton to contemplate, as a loss event in one other a part of the world might see less reinsurance support called in, but likely with less noise about whether the degrees of risk-sharing are fair.
Where Florida is worried, reinsurance capital has all the time been more necessary. Not only due to exposure, but additionally the relatively thinly capitalised nature of some domestic market insurers which has made their ability to weather even a storm of Milton magnitude a challenge to weather.
So, we imagine reinsurers and ILS capital providers can be motivated after Milton to carry firm on price and terms for Florida, with perhaps a bit of more flexibility available in other regions of the world, but overall property catastrophe reinsurance and retrocession will likely see a comparatively flat renewal, it seems at this stage of the yr.
Read all of our hurricane Milton coverage.