Wells Fargo: Hurricane "Milton" may cause losses of up to $100 billion
Wells Fargo expects Hurricane "Milton" to potentially cause losses of up to USD 100 billion, with a baseline expectation of USD 20 billion. The bank points out that losses exceeding USD 50 billion will impact its capital and earnings. Hurricane "Helene" also resulted in losses ranging from USD 30.5 billion to USD 47.5 billion, with expectations of reinsurance rates increasing, leading to higher homeowner premiums. The United States experiences an average of 8 major weather events annually, with this number rising to 18 in the past five years
Category 5 is the highest level of hurricane wind force. The National Hurricane Center in the United States said that "Milton" could become the "most destructive" hurricane in recorded history in central and western Florida. According to U.S. media statistics, multiple counties in the coastal areas of Florida have issued mandatory evacuation orders, requiring over 1 million people to evacuate.
Wells Fargo stated in a research report, "The insurance losses caused by 'Milton' should be in the billions," he estimated that these losses could range from $100 billion to $1 trillion. However, the bank's baseline expectation is a loss of $200 billion. Wells Fargo stated that in any scenario, the market seems to have already priced in losses exceeding $500 billion.
What does this mean for insurance companies, reinsurance companies, and their bottom lines? Based on Wells Fargo's underwriting scope, if losses exceed $500 billion, this could be equivalent to 3.5% of the bank's capital and 106% of fourth-quarter earnings, or 20% of annual earnings. Clearly, the bank's baseline expectation is for a better scenario, accounting for about 1.5% of its capital and 43% of fourth-quarter earnings, or 8% of annual earnings.
Wells Fargo further pointed out that undoubtedly, in the context of hurricanes "Milton" and "Helene" coming one after another, reinsurance rates may rise, which basically means higher premiums for homeowners.
According to CoreLogic data, Hurricane "Helene" formed in late September as a Category 4 storm and hit parts of Florida, causing $30.5 billion to $47.5 billion in insurance and non-insurance, flood, and wind disaster losses. In addition, Moody's estimates that the total U.S. private market insurance losses from Hurricane "Helene" range from $8 billion to $14 billion, with the highest estimate at $11 billion. In comparison, the United States experienced 28 weather and climate disasters last year, resulting in losses of around $93 billion.
There are about two months left until the end of hurricane season, and multiple hurricanes have already made landfall in the United States. Since the 1980s, the country has experienced an average of about 8 significant weather events each year, causing at least $10 billion in losses. In the past five years, the average number of significant weather events causing at least $10 billion in losses has increased, reaching 18 by October of last year.
At that time, CoreLogic's Chief Innovation Officer John Rogers said the situation will only get worse. "Unfortunately, the severity and frequency of significant weather events may increase," he said.
That's why insurance companies are fleeing Florida. It's too challenging for them here, as they can't control their risk exposure, as they openly admit. For homeowners and small landlords in Florida and other areas, they either can't find insurance or can't afford it because of higher premiums. Across the U.S., the average property insurance payout for single-family homes is 52% higher than four years ago. Depending on the location, the actual amount paid could be even higher This has led to the creation of uninsured assets. A report released this year found that three years ago, uninsured property valued at an estimated $16 trillion was at risk, with 6.1 million homeowners not insured. As the insurance industry's challenges become more pronounced, the situation may further deteriorate