APAC insurers have ‘limited’ exposure to California fires

Fitch Ratings Sydney says that the recent wildfires in Los Angeles are unlikely to have an impact on the ratings of APAC insurers and reinsurers, which have “limited” exposure to the event. “We expect any potential impact to be minimised by strong reinsurance programmes, although the increasing frequency and severity of extreme events like the wildfires will raise the cost of reinsurance for global insurers, including those in APAC, which will have medium- to long-term implications on their capital and earnings,” said the ratings agency. Fitch expects insured losses from the wildfires to significantly exceed previous records, with industry estimates ranging from $35bn to $50bn. However, it expects APAC insurers to have limited exposure – including little direct exposure as well as no material participation in California’s insurer of last resort, The Fair Access to Insurance Requirements (FAIR) Plan. “Fitch-rated APAC insurers and reinsurers with potential exposure to the wildfires have strong capital positions and diversified risk exposures, which limit the disaster's impact on their credit profiles,” said the credit ratings agency. Fitch expects the losses for Japanese non-life insurers that operate in the US to be “manageable”, given their substantial earnings and capital buffers. A BNN Bloomberg report on 13 January 2025 cited a Bloomberg Intelligence estimate that said Japan's three major non-life insurers – Tokio Marine & Nichido Fire Insurance, Mitsui Sumitomo Insurance Company and Sompo Holdings – account for around 3% of the wildfires' insured damage. Fitch added that industry sources estimate that South Korean insurers, including DB Insurance Co and Korean Reinsurance Company, face losses of around KRW90bn ($61.8m), about 0.1-0.2% of the global insured loss. Other South Korean insurers that operate in the US, such as Hyundai Marine & Fire Insurance and Samsung Fire & Marine Insurance, have not yet reported any wildfire-related claims. Fitch noted that over the past few years, Fitch-rated APAC insurers and reinsurers such as Taiping Reinsurance Company and QBE Insurance Group have reduced their presence in the US market to manage the accumulation of catastrophe exposure. “While we believe these insurers and reinsurers may have some direct and indirect exposure, the effect of the losses on their metrics should be within current rating sensitivities. Their ratings are supported by strong capital positions and diversified risk exposures,” commented Fitch. While the direct impact of the fires may be limited, the longer-term implications are significant, added the agency. “The California wildfires’ impact on APAC insurers and reinsurers may be limited, but they highlight broader challenges to the industry from escalating global catastrophes and climate change. The event can indirectly impact treaty reinsurance capacity in APAC as reinsurers may allocate more capital for losses, altering their risk appetites. Moreover, the increasing frequency of secondary perils like wildfires, which are challenging to model due to their complexity, has influenced a shift in the market for risk solutions. This includes catastrophe bond structures that trigger on a per-occurrence basis versus on an aggregate basis,” noted Fitch.

APAC insurers have ‘limited’ exposure to California fires

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