With Hurricane Milton recently making landfall near Sarasota, Florida, as a Category 3 major hurricane, Icosa Investments has updated its estimates for insured losses to between $20 billion and $60 billion, adding the range is still subject to change due to significant uncertainty.
“Fortunately, Tampa avoided the feared direct hit, and Milton has since weakened as it heads towards the Atlantic, where it is expected to dissipate in the coming days,” Icosa Investments said.
Based on its loss estimates, the firm anticipates losses for the cat bond market of below 5%.
“A temporary markdown in Friday’s valuation is likely due to the ongoing uncertainty. The reduced retention levels for aggregate bonds will also play a temporary role in performance and needs to be monitored going forward,” Icosa Investments added.
The firm continued, “With these still significant losses for the reinsurance industry, premiums are expected to remain elevated or even rise further in the coming weeks. This creates an attractive entry point for investors in the cat bond market.”
CEO of Icosa Investments Florian Steiger, commented, “Although it might not feel this way to the people in Florida facing extreme devastation from Hurricane Milton, the situation is a marked improvement compared to earlier concerns of a direct hit on Tampa as a potential Category 4 hurricane, which could have resulted in far higher insured losses than are now anticipated.
“From a cat bond investment perspective, this event will likely keep us engaged for some time, as loss reports from individual cedants begin to emerge in the coming weeks. While insured losses will still be substantial — likely well into the double-digit billion range — a further hardening of the reinsurance market seems possible.
“This will likely drive reinsurance premiums higher, including in the cat bond market. With the primary market season now underway, it will be interesting to see how these dynamics unfold.
“Additionally, topics such as “loss creep” and “attachment erosion” will be crucial in the coming months, as they may significantly influence ultimate loss estimates and payout structures.”