Hurricane Milton and the Catastrophe Bond Market

From Martin Rea, Senior Consultant, JANA Investment Advisers about the impact of Hurricane Milton on the Catastrophe Bond Market.

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  The worst seems to be over. Hurricane Milton made landfall in central-western Florida as a Cat 3. It has caused severe wind and flood damage but has now passed into the Atlantic Ocean where it should dissipate by tomorrow.

• The damage is less than expected. Initial estimates suggested the economic cost could reach US $100bn but initial modelling suggest the loss is ~$30bn mark – with Cat Bond manager estimates ranging from US$15 – 60bn.

• The storm surge cost is less than expected, and less than Hurricane Ian so flood related damage is also expected to be lower and below most attachment points.

• The impact to the Cat Bond market is likely to be less than 5%. Cat Bond manager estimates are that the hit to the Cat Bond market is likely to be in the 1 – 3% range. It’s still very early though. By comparison Hurricane Ian losses were 9%.

• We do not expect to see significant outflows from the Cat Bond market. The hurricane season is close to an end (November), the Cat Bond market is already up 13.7% on the year and all in yields are above 11%.

Also read: Hard To Be Gloomy

• There could be ramifications from Hurricane Helene & Milton. These were two very big hurricanes in terms of size, formation, and intensity:

• 1. It could impact the few remaining local Florida insurers – most private insurers have already left the region but this final few could face a difficult period potentially leaving the State (Florida Citizens) as the insurer of last resort.
  2. Insurance premiums will likely be increased. This may raise attachment points and possibly yields on new issue Cat Bonds.
  3. Climate change has been a notable discussion in the media. If there is one silver lining from these otherwise tragic events it is that it has significantly raised climate change awareness and its impact.