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Hurricane Milton – some early thoughts

Hurricane Milton, a powerful Category 3 storm, made landfall in Florida on the evening of 9th October, causing widespread devastation. The storm brought torrential rains, severe flooding, and significant wind damage. Although hurricane strength winds up to 129 mph were confined to a radius of around 60 miles south of Tampa, most of the state of Florida experienced tropical storm force winds up to 73mph. The hurricane spawned many tornadoes in its wake. 

With its path cutting through a densely populated region, it is expected to result in significant insured losses. The exact quantum of losses is still uncertain, with a range of estimates between $20 billion to $60 billion from various modelling agencies. The consensus is currently at the lower end of this range. Whatever the final cost, Milton will become one of the costliest hurricanes in history. Immediate comparisons are to Hurricane Ian, which struck south west Florida in September 2022 and is estimated to have cost insurers and reinsurers $60 billion.  Any estimate at this stage needs to be treated with caution until the full extent of both property and human loss can be accurately calculated. Underwriters have pointed to the relative age of the housing stock in impacted areas, buildings that pre-date hurricane Andrew often are built to less stringent building codes. 

Insurance will cover wind damage, wind-driven rain and tree damage, but flooding—especially from storm surges - is typically provided under separate flood insurance, often provided through the National Flood Insurance Program (NFIP). A number of Lloyd’s syndicates provide bespoke flood cover, although these are often very well diversified accounts with only limited exposures within five miles of the coast. 

The power of the hurricane diminished as it passed over land, dropping to a category 1 storm, with sustained gusts of up to 93 mph. The storm cut a swathe North East through Florida, exiting the state over Orlando.is not unknown for a hurricane to double back and make a second landfall having regenerated over warm waters. Happily this is not the case for Milton.  

The storm's impact on the insurance industry is expected to extend beyond immediate claims. Insurers and reinsurers (who protect the insurers) will likely face significant financial losses, prompting an increase in reinsurance rates and homeowner premiums in the coming years. This will exacerbate Florida's already strained insurance market, following closely on the heels of Hurricane Helene, which has seen rising premiums and the withdrawal of insurers from high-risk areas in recent years due to repeated natural disasters. Lloyd’s has an approximate 5% share of the US Property and Casualty market and is significantly underweight as a property reinsurer. It is too early to predict Lloyd’s direct share of the loss but insurers are keen to emphasise that these sort of catastrophic events are exactly why insurance and the insurance market exist; to restore individuals and businesses in the aftermath of misfortune. 

On the human side, at least 14 people have been confirmed as having lost their lives in the storm: nearly three million people left without power, whilst over a million were under evacuation orders. The heavy toll of having to deal with displacement, loss of homes, and the long road to recovery will be difficult for the affected communities to deal with. Beyond the economic damages, the disruption to daily life and the potential for casualties and injuries deepen the tragedy caused by the storm.

We will continue to monitor the situation, and provide further updates as we develop our understanding of the event.

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