Simone Del Rosario: It’s a 1-in-1,000-year rainfall event. Wind gusts around 100 miles per hour near Tampa. The roof blew off the Tampa Bay Rays’ Tropicana Field, which was supposed to house hurricane workers. Hurricane Milton has torn through Florida, and now comes the recovery. 

A Morningstar analysis ahead of the storm estimated Milton’s damage could cause between $60 to $100 billion dollars in insured losses. For reference, Hurricane Katrina’s insured losses totaled $100 billion in today’s dollars. 

I want to bring in Nadja Dreff, Senior Vice President and sector lead for global insurance and pension ratings at Morningstar. And Nadja, I know that you have to update your analysis over there at Morningstar, but so far, with the way that Milton has come through Florida, are you expecting things to be on the higher or lower end of your previous estimates?

Nadja Dreff: So at this point in time, given what we already know about where the landfall happened, luckily, we are expecting the range to be lower than we had previously anticipated. So instead of the hurricane hitting head on to Tampa, we know that it actually hit slightly below which does make a difference to what our insured loss estimates are going to be and does lower them.

Simone Del Rosario: Is it still something that will be in the 10s of billions of dollars, though?

Nadja Dreff: Exactly, unfortunately, the the impact is still devastating on the communities and the insured losses. At this point, we think they may reach even something like $60 billion now, of course, knowing what we know about the type of damage that has happened, given the very forceful winds and a lot of flooding that the hurricane brought through, through water storm surge and various kinds of water damage, we also expect damages from Flooding to be substantial, so probably something in the neighborhood of about 10 billion to be covered by the state back, sorry, the federal program, which is the National Flood Insurance Program.

Simone Del Rosario: and that would be money on top of what you’re calculating, correct. What you calculate, are the insured losses, or does that include federal insurance?

Nadja Dreff: Yeah, at this point, when we talk about insured losses, it does include the federal program for flood insurance. A lot of private insurers will not have extensive flood damage payouts just because they don’t provide flood coverage, but it is like where it’s provided it’s through this federal program. So altogether, we think, unfortunately, it may approach $60 billion

Simone Del Rosario: How do these losses compare to other notable hurricanes?

Nadja Dreff: Well, very good question. That’s something we would look at as we do our analysis, because clearly, we’re not there assessing damage as it happens. But what we do is we look at the various cat modeling scenarios, but we also primarily also focus on the past historical losses based on other similar hurricanes. Unfortunately, we have a number of these hurricanes that have happened. The more most recent one just a couple of weeks ago, Hurricane Helene. Similar path. That one was smaller. We we think it was substantially smaller, probably close to 10 billion, kind of at the higher end of the range. And then we’ve also seen hurricane Ian, which was the second largest catastrophe in the US, and that cost insurers in the neighborhood of $55 billion which is what we think is kind of on par with Hurricane Milton.

Simone Del Rosario: So what makes Milton so much more damaging from an insurance perspective than Helene did when we saw the devastation that Helene brought. I mean, it was so widespread so many states. What was it about this Tampa region that makes Milton more damaging financially?

Nadja Dreff: Very good question. What we look at more closely is the actual path of the hurricane and what is located and how low laying those areas are. And unfortunately, that tends to be the case in the area where it hit that a lot of flood damage is going to be incurred, a lot of storm surge from from the ocean because of the properties that lie close to the coast. And then we look at how built up, what is the population density of the area being affected, and all those things. You know, the closer we approach the Tampa Bay area, which is a major urban center, the more the higher these damages tend to go, unfortunately.

Simone Del Rosario: With these two back to back storms like this, how does the. Insurance industry respond, surely they’re going to have some major underwriting losses on their books.

Nadja Dreff: Well, yes, we do expect these events to affect profitability, affect their earnings, especially given the hurricane season, where we’ve seen at least these two major storms, and that’s something you know, to keep in mind. But at the same time, insurance companies set aside money for exactly these kinds of events. This is why they are there, to protect and to pay out on policies. They also tend to purchase a reinsurance so it’s kind of insurance for insurance companies, and when losses reach a certain dollar value, then reinsurers take on a portion of these losses. And so when it comes to the global reinsurance industry that provides this product, we think they will not see a major impact, but everything has to be kind of kept in the perspective and the accumulation of losses over the year, and especially during this hurricane season, we think, unfortunately, will lead to some reinsurance price increases.

Simone Del Rosario: That’s what I was going to ask you next. Is how this is going to affect homeowners in Florida, they already experienced the highest insurance rates in the country by a long shot. So can they anticipate even higher rates after a hurricane season like this? 

Nadja Dreff: Well, unfortunately, that can’t be ruled out. I mean, the way the industry works based on their underwriting profitability, which again, is based on the prices that they charge and the prices that they pay on reinsurance. Unfortunately, the the events of the of late kind of point to prices being higher, not lower. In the earlier part of the year, we saw reinsurance prices kind of stabilizing, even potentially declining. Unfortunately, experience tells us, following a major hurricane, those prices usually tend to harden or they go up, and so therefore we think the stabilization decrease is going to stop, and instead we’re going to see the reinsurance price going back up, potentially, not a huge spike, because 2023 alone saw a very sharp increase in reinsurance prices, but then to see them go up again, it is a concern when it comes to what it does to insurance prices for households and policyholders.