Analysis: Hurricane Milton poses “threat” to insurance market

TALLAHASSEE – Hurricane Milton “poses a significant threat to the Florida property insurance market,” particularly for insurers that focus their business on the state, the financial rating agency AM Best said in an analysis released Wednesday.
Milton, which could slam into heavily populated areas of the Gulf Coast late Wednesday, comes two weeks after Hurricane Helene caused extensive damage in Florida and other states. But much of the damage from Helene in Florida involved flooding — not something covered by typical property insurance policies — while Milton is expected to cause costly wind and flood damage.
That will have implications for reinsurance, which is essentially backup insurance for insurers, and for insurance-company surplus amounts, which is money that provides a sort of financial cushion.
“The damage from Hurricane Milton is expected to be much worse than Helene’s and will be predominantly in Florida,” the analysis said. “Diversified, large insurers and reinsurers will … likely be able to absorb losses from Hurricane Milton as an earnings event. However, this will depend on the intensity, location and the magnitude of the hurricane. Property insurers concentrated in Florida could experience a significant loss of surplus, which will have further ramifications on availability and affordability of property insurance in Florida.”
AM Best did not provide a projection of insured losses from Milton, which could hit the Tampa Bay area as a major hurricane — a potential nightmare scenario. 
Florida’s private property insurers have shown signs of rebounding during the past year after financial problems led to them dropping large numbers of policies and significantly raising rates. The problems led to the state’s Citizens Property Insurance Corp., which was created as an insurer of last resort, becoming by far the largest insurer in Florida.
State Chief Financial Officer Jimmy Patronis on Tuesday estimated potential insurance losses from Milton could reach $20 billion. But he \indicated confidence in insurers’ ability to deal with the storm.
“It really depends on how the impact and damage of the storm is. Right now, as the path of the storm that is proposed, you’re looking at somewhere north of $10 (billion), maybe $20 billion worth of insured losses,” Patronis said during an appearance on the “Varney & Co.” show on Fox Business News. “The (insurance) carriers in the state of Florida, they have been able to raise the type of capital in order to handle the storm. We’ve got nine new companies coming into the state.”
But the AM Best analysis focused, in part, on the state’s relatively heavy reliance on what it described as “Florida specialists.” Unlike national carriers that do business in numerous states and sell various lines of insurance, the Florida specialists are focused on the state’s property-insurance market and rely heavily on reinsurance to help shield them from financial risks.
The analysis said “Hurricane Milton will likely stall any softening of price and terms in the property reinsurance market.” That would be coupled with companies potentially having to pay large numbers of claims with their own cash, creating a squeeze that could affect the numbers of policies insurers will write.
“The hard reinsurance market, possible local insolvencies, and declining capital among insurers concentrated in Florida will significantly pressure the Florida property market,” the analysis said. “Citizens Property Insurance Corporation has been making concerted efforts to depopulate its book (reduce its number of policies). However, any cutback in capacity among other insurers will only add to the number of property owners covered by Citizens.”
During the past few days, Gov. Ron DeSantis and other state officials have pointed repeatedly to efforts to remove debris that remained in Gulf Coast communities after Hurricane Helene. Also, Hurricane Debby caused damage on the Gulf Coast in August.
The AM Best analysis said remaining debris could increase insured losses from Milton.
“With each storm, the debris left behind becomes projectiles to be launched by the next storm, leading to more damage than is typically associated with a Category 3 or 4 hurricane,” the analysis said. “Hurricane Milton, following on the heels of Hurricanes Debby and Helene, will likely present the same types of issues that could exacerbate the degree and type of destruction.”