Piper Analysts Predict Hurricane Milton Could Transform the Insurance Market

Hurricane Milton’s potential impact on the insurance market is uncertain, but analysts from Piper Sandler believe it could be significant. In a recent note, the firm indicated that while it is too early to make accurate predictions about total losses, they anticipate considerable personal, economic, and insured damages from the storm.

Piper Sandler emphasized that Milton may become one of the largest catastrophe events in recent history. They cautioned that uncertainty could lead to declines in stocks related to the insurance industry until the extent of insured losses is fully understood.

The analysts noted that insured damage from hurricanes stems from various factors, including the storm’s location, strength, and the resulting damage. Wind damage typically falls under private insurance coverage, whereas flood damage is predominantly managed by the federal government.

Historically, Hurricane Ian holds the record for the most costly hurricane to primarily impact Florida, resulting in about $56 billion in insured losses. While Florida is generally well-prepared for hurricanes, the influx of new residents to coastal areas could lead to even more significant insured damages compared to previous events.

Piper Sandler pointed out that insurance stocks often experience a drop as hurricanes approach landfall but tend to recover once the full scope of insured losses becomes clearer. The insurance industry typically reacts to major events by increasing premiums, tightening policy terms, and reducing availability, which can ultimately be beneficial for the sector over the long term.

However, smaller insurance companies lacking sufficient reinsurance coverage may encounter heightened risks in the aftermath of such events. Piper Sandler has identified specific companies that could be particularly vulnerable, including Allstate, American International Group, Chubb, Heritage Insurance, Progressive, and Universal Insurance Holdings, all of which have significant exposure to weather-related catastrophes in Florida.

The analysts concluded that with an event as substantial as Hurricane Milton, it is unlikely that many insurers will escape without incurring losses.