Investing.com -- Hurricane Milton, while its full impact is still uncertain, has the potential to alter the insurance market, according to Piper Sandler analysts.
The firm said in a note Tuesday that it is too early to accurately forecast total losses, but they expect substantial personal, economic, and insured damages from the storm.
Piper Sandler highlights that Milton could become one of the largest catastrophe events.
"It is possible uncertainty will continue to cause stocks with exposure to fall until insured losses are better understood," wrote the firm.
The analysts point out that the insured damage from a Hurricane comes from a combination of factors such as where the storm strikes, its strength, and the nature of the damage.
Wind damage is typically covered by private insurers, while flood damage is largely handled by the U.S. government.
"The most costly hurricane that primarily struck Florida was Hurricane Ian, which caused about $56 billion in insured losses," said the analysts. "Florida is likely prepared, so we can hope that few people will be harmed, but more people have been moving to coastal Florida in recent years, so the insured damage could be greater than the last time an event like this occurred."
Piper Sandler notes that historically, insurance stocks tend to fall as hurricanes approach landfall but rebound once the full extent of the insured losses becomes clearer.
They add that the insurance industry often responds to large events by raising premiums, tightening terms, and reducing availability, which can be economically positive for the sector in the long run.
However, smaller insurers with inadequate reinsurance coverage could face greater risks.
Piper Sandler identifies several companies that could be most affected, including Allstate (NYSE:ALL), American International Group (NYSE:AIG), Chubb (NYSE:CB), Heritage Insurance, Progressive, and Universal Insurance Holdings (NYSE:UVE), all of which have large weather catastrophe exposure in Florida.
According to the analysts, "for an event as large as Milton, there will be few insurers with no losses."