The Tampa Bay Area May Still Avoid the Worst of Hurricane Milton but Significant Uncertainty Remains in Terms of Insured Losses

The U.S. National Hurricane Center's most recent estimated trajectory of Hurricane Milton places the entry point of the storm about 40 miles south of Tampa and 20 miles south of the mouth of Tampa Bay. However, the large metropolitan area of Tampa remains within the cone of uncertainty, and the storm's trajectory can still change in the hours before it makes landfall. Our initial insured loss projections if Hurricane Milton makes direct landfall in Tampa remain in the $60 billion to $100 billion range, potentially making Hurricane Milton's insured losses on par with those of Hurricane Katrina, which reached $100 billion in today's dollars and is still considered the costliest natural catastrophe in U.S. history. Milton's destructive path will likely stretch far beyond the Florida coastline in the Gulf of Mexico and will also affect other major urban areas, including Orlando. The damage caused by recent storms, including Hurricane Helene, will compound the losses in regions still battling with recovery efforts.

The insurance industry has always feared a major hurricane (Category 4 or 5) hitting Tampa Bay directly, given the city's vulnerability to storm surges and flooding. A direct hit on Tampa with Category 4 winds and storm surge could result in significant insured losses. Additional insured losses will come from business interruption, watercraft destruction, and environmental hazards. We note that flooding and storm surge losses are typically excluded from most private insurance policies but can be covered under the government-backed National Flood Insurance Program, which has strict limits.

Nevertheless, the hurricane's most recent projected path suggests that insured losses will be substantial but not catastrophic. We expect losses with an entry point south of Tampa Bay, but far from Fort Myers, to be in the $30 billion to $60 billion range. Regardless of the magnitude of the damage inflicted by Hurricane Milton, the accumulation of insured losses during the 2024 hurricane season, which still has approximately two more months to go, will likely make a dent in insurers' profitability, particularly to those with significant exposures to personal lines in Florida. Cat bonds and other insured-linked securities also remain subject to losses depending on the entry point, wind forces, and eyewall size. On the other hand, global reinsurers' financial strength will likely remain relatively unscathed in a scenario where Hurricane Milton does not hit Tampa directly, given the higher attachment points of most reinsurance programs and the reduction in capacity implemented during the hard market of the past few years. Even in a scenario of moderate losses, we anticipate that the reinsurance industry will resume its hardening trend with higher rates and stricter renewal conditions in early 2025.

Although Hurricane Beryl opened the 2024 season with the earliest Category 5 hurricane on record and meteorologists expected above-average storm activity in the Atlantic due to abnormally high water temperatures, hurricane losses were still relatively under control. Hurricane Milton's impact on the Florida peninsula can still quickly change the season for the worse.