Hurricane Milton and Its Impact on the Insurance Market

According to analysts at Piper Sandler, Hurricane Milton might significantly affect the insurance market, although its full impact is still unknown.

In a note released on Tuesday, the analysts stated that while estimating total losses at this stage is premature, substantial personal, economic, and insured damages are anticipated from the storm. They believe Milton could rank among the largest catastrophe events.

The firm noted, "It is possible uncertainty will continue to cause stocks with exposure to fall until insured losses are better understood."

The extent of insured damages from a hurricane depends on various factors, including the storm's path, strength, and damage characteristics. Typically, private insurers cover wind damage, while flood damage is predominantly managed by the U.S. government.

Piper Sandler highlighted that Hurricane Ian, which primarily hit Florida, resulted in around $56 billion in insured losses. While Florida appears prepared to handle the situation, the influx of new residents along the coast in recent years raises concerns that insured damage could exceed past events.

Historically, insurance stocks tend to decline as hurricanes approach landfall but often recover as the extent of insured losses becomes known. The insurance industry usually reacts to large catastrophic events by increasing premiums, tightening coverage terms, and limiting availability, which can lead to long-term economic benefits for the sector.

However, smaller insurers lacking sufficient reinsurance coverage may face heightened risks. Piper Sandler identified several companies likely to be most affected, including Allstate (NYSE:ALL), American International Group (NYSE:AIG), Chubb (NYSE:CB), Heritage Insurance, Progressive, and Universal Insurance Holdings (NYSE:UVE), all of which have substantial exposure to weather-related catastrophes in Florida.

The analysts concluded, "For an event as large as Milton, there will be few insurers with no losses."