As Hurricane Milton tears through the US, the consequences will be felt far beyond its immediate path, extending into the global property insurance market. Though the storm isn’t hitting UK shores, its aftermath will have lasting repercussions for property premiums worldwide. The ripple effect of this catastrophic event is expected to drive property premiums to new highs, affecting markets across the globe, including the UK. Here's why.

Global Losses and Premium Increases

Major global insurers with substantial exposure to the U.S. property markets are bracing for multi-billion-pound losses as they process claims from the devastation. To recover financially, these insurers will likely raise property premiums across all territories. Although Hurricane Milton is a U.S.-centric event, the need to mitigate staggering losses will have a global impact, resulting in rising premiums for property accounts worldwide, including in the UK.

The reinsurance market operates on a global scale, and insurers will rely on their reinsurance treaties to cover significant portions of claims. This reliance will lead to increased reinsurance rates and a reduction in capacity for all insurers. Even those not directly involved in U.S. property will feel the impact due to the interconnected nature of the global insurance market. Large losses in one region typically prompt price corrections in others, as insurers strive to maintain profitability and solvency amid substantial claims payouts.

Hurricane Katrina, which struck in 2005, profoundly affected the global property market. Early indicators suggest that Hurricane Milton may leave an even more destructive path. Katrina resulted in over $125 billion in damages, with insurers and reinsurers paying between $60 billion and $80 billion in claims. This catastrophic event led to a sharp increase in insurance and reinsurance rates as companies endeavoured to rebuild capital reserves.

In the aftermath, the global property insurance market entered a hardening phase. Unlike Katrina, the market is currently experiencing a well-established hardening phase. Reinsurance rates are already exceptionally high, and Hurricane Milton is likely to exacerbate this situation by further reducing reinsurance capacity and causing significant rate increases across the global property market. Insurers will need to rebuild capital reserves, raise reinsurance rates, and face an overall reduction in capacity.

Given that property premiums increased globally after Katrina during a soft market, the impact of Hurricane Milton on an already strained property market will be substantial.

The Lloyd’s Market Factor

A considerable portion of American property insurance is placed through Lloyd’s, adding another layer of complexity. If Lloyd’s syndicates incur substantial losses due to Hurricane Milton, they will need to take measures to recover.

Depending on the extent of losses to specific syndicates, some may opt to close their property books due to overwhelming claims. The depletion of syndicate reserves and capital could quickly turn a previously profitable syndicate into a loss-making entity. The Corporation of Lloyd’s closely monitors syndicates for solvency, ensuring that those with claims can meet their obligations while maintaining the required solvency levels. Failure to do so could lead to syndicates entering run-off, further reducing overall capacity and impacting remaining insurers.

For syndicates, maintaining balance sheets is critical—not only for future growth but also for survival. Given the scale of Hurricane Milton’s destruction, widespread premium increases or even market exits in the property insurance sector are likely as insurers seek to recover from significant losses.

A Global Market Repercussion

While the UK and other global markets may not directly face hurricanes, the financial fallout from events like Hurricane Milton will still resonate globally. Insurers will need to manage and offset their losses, driving up premiums across regions. While it’s fortunate that the hurricane doesn’t pose a direct threat to the UK, the long-term implications for the property insurance market will be significant, making this a global issue.

The property insurance market is entering a phase of heightened volatility. As we brace for the knock-on effects of Hurricane Milton, it’s evident that this event will have far-reaching consequences for premiums and underwriting capacity worldwide. Even though the storm itself isn’t hitting us, its financial impact is unavoidable.

How Servca Can Help

At Servca, we specialise in large property risks, including distressed and scheduled properties. With our extensive access to DUAs and a broad range of markets in Lloyd’s, we are well-positioned to provide tailored solutions, even in challenging market conditions.

Although some of the larger Lloyd’s syndicates can offer a wider range of coverage in the general market, this size and range can become a negative in a hardening market as they try and balance a drastic increase of losses against the rest of their book. Potentially leading to increased premiums or a reluctance to place a risk which dose not fall into their decreasing appetite.

Whether you’re facing unique underwriting challenges or require coverage for high-value properties, Servca offers the expertise and resources to help you secure the best possible protection amidst the global market disruption.

If you’d you have any questions or would like to discuss your policy, please reach out to Becca McCullough: 0207 388 9999

Disclaimer

This article is intended for educational purposes only and does not constitute legal advice. Servca disclaims any liability for actions taken based on the information provided in this article.

Reference

[1] https://commercial.allianz.com/news-and-insights/reports/lessons-learned-from-hurricane-katrina.html#:~:text=It%20remains%20the%20largest%2Dever,%2460bn%2B%20in%20insured%20losses