U.S. property and casualty insurance stocks tanked on Monday after Hurricane Milton intensified into a category 4 storm on its path towards Florida's western coast, marking yet another costly disaster for the industry to cover this year.

Insurers are expected to face catastrophe-related claims for billions of dollars from a devastating hurricane season. Catastrophe losses refer to a significant financial hit that insurance companies incur due to large-scale natural or man-made disasters.

Hurricane Helene caused more than $6.4 billion in insured property and casualty losses across several states, with total economic losses from the storm projected to be between $225 billion and $250 billion, according to Insurance Business magazine and Insurance Journal.

MOUNTING LOSSES

Tropical storms and hurricanes have intensified over the past few years and have significantly hurt profits due to substantial payouts tied to widespread property damage, business interruptions and liability claims.

The U.S. has grappled with multiple major hurricanes in 2024, including Hurricane Debby striking Florida in August, Hurricane Francine which made landfall in Louisiana in September, and more recently Hurricane Helene that hit Florida in the same month.

The S&P Insurance Select Industry index was last down 3.1% on Monday.

Severe and frequent natural disasters have exacerbated the industry's retreat from high-risk areas, particularly Florida. The costs of reinsurance have also risen sharply in the state, making it more expensive for insurers to operate.

"Investors are not only thinking about the short-term hit to earnings but also the long-term affect weather change and a seasonal uptick in damage will do to the business," said Michael Ashley Schulman, partner and CIO at Running Point Capital Advisors.

"Their credit ratings have been largely unaffected in the short term; however, if extreme weather drives people away, their long-term revenue models may be affected," Schulman said.

On Monday, Florida was preparing for the largest evacuation since 2017 as Milton intensified in the Gulf of Mexico on its path toward its western coast, coming on the heels of the devastating Hurricane Helene. It had the potential to affect areas already wrecked by Helene.

HERITAGE DOWN 25%

Heritage Insurance, which has a big footprint in the state, was last down 25%. Universal Insurance and HCI Group fell 18% and 17%, respectively.

Sector bellwether Travelers Companies was last down 4%, while Allstate and Assurant declined 5% and 4.4%, respectively.

Meanwhile, Generac, which makes generators that power homes during an outage, surged more than 8% on Monday as investors bet on increased demand arising from the hurricane-related disruptions.

Insurance broker Aon said in a report late on Sunday there was an increasing risk of life-threatening storm surge and damaging winds for portions of the west coast of the Florida Peninsula beginning Tuesday night or early Wednesday.

The U.S. hurricane season is expected to end on Nov. 30. Forecasts have pointed to an above-normal activity this year due to unusually warm sea surface temperatures in the tropical Atlantic, coupled with La Nina weather patterns.

"The insurance industry must be prepared for the possibility of a challenging second half of the year," broker Gallagher Re said in a July report.

"These conditions, in tandem with the influence of climate change, have aided in more unpredictable and extreme events in 2024."