California wildfire loss estimates up to $20bn

Insured loss estimates from the escalating Los Angeles wildfires are rising, with figures of $20bn now being put forward. Analysts are projecting a total economic losses between $50bn and $60bn. J.P. Morgan has doubled its preliminary insured loss estimate for the fires to $20bn, which would make it the costliest insured wildfire event in California’s history. It anticipates that the majority of insured losses will hit the homeowners’ line of business, with primary insurers poised to assume a greater share of the loss than reinsurers. S&P Global Ratings said the insured figure will be “significant” and could potentially match the $16bn loss from the 2017 Tubbs Fires in Northern California. The ratings agency said wildfire losses in the first two weeks of 2025 could “rapidly deplete the catastrophe budgets of US primary insurers”. This early strain may lead to earnings pressure later in the year, especially if 2025 proves to be above average for catastrophes, it added. But S&P believes its rated primary insurers can “bear the brunt” of the LA wildfire losses, after strong results last year and a “material reduction” in policy coverage for wildfire prone areas of California. It thinks the impact will be manageable for its rated global reinsurers, with no significant effect on earnings. DBRS Morningstar has put out an initial insured losses estimate from the wildfires of $8bn. This would rank the fires “amongst the most destructive in California’s history,” Morningstar said, noting that eventual damages will depend “on the final number of properties being affected by the wildfires”. It expects the ongoing wildfires will have a “negative but manageable impact on major property insurers active in the Californian market. Losses will also be “manageable” for the global reinsurance industry, it said. AM Best expects insurers to incur “large” losses from the “expanding” California wildfires. It said more concentrated individual insurers are likely to be more negatively impacted. AM Best said the longer-term impact on California’s insurance market may be “substantial” because insurers will further re-examine their appetites for wildfire risk, which has become “highly unpredictable”. It noted that ultimate insured losses will depend largely on the coverage secured by homeowners, many with high-value real estate, as well as the level of protection obtained by business owners. Demand surge and ongoing inflationary pressures may also drive up insurance claims-related costs, AM Best said. Insurance investment firm Twelve Capital said key players in the insurance industry are likely to experience significant losses from the fires, with specialised firms that cover high-net-worth properties being hit hardest. “Additionally, the California FAIR plan – the [state-backed] insurer of last resort – has considerable exposure in the Pacific Palisades region alone, estimated at around $6bn,” it added. Berenberg noted that so far the wildfires have mainly affected residential rather than commercial or industrial properties. It said that homes in the most affected area of the Palisades are largely insured by the FAIR Plan, which faces potential losses of $6bn. Twelve Capital doesn’t think the losses will have a big impact on the cat bond market. “Although it is too early to fully assess the extent of the impact, given it is actively ongoing, the majority of insured losses are expected to be absorbed by primary insurers and junior reinsurance layers, thus are unlikely to significantly affect the cat bond market. It is likely however, that the wildfire event will have the impact of attachment erosion in aggregate structures, meaning that events in the remaining risk period do not have to be large to cause a loss,” it said. In its latest note, Marsh said that at least five major wildfires continue to affect Southern California, including the Los Angeles region and surrounding areas. More than 2,000 structures are thought to have been lost, and hundreds of thousands displaced by lost homes and evacuations. Smoke and infrastructure disruption remain ongoing concerns, the broker said. Marsh also said that weather conditions, with strong, gusty winds and extremely dry conditions, continue to maintain the threat for extreme fire spread. Some relaxation of conditions is expected intermittently overnight and over the weekend. But the weather forecast for early next week shows probable Santa Ana conditions, with strengthening dry offshore winds that will enable extreme fire spread for existing blazes, as well as fresh ignitions or spot fires, the broker warned.

California wildfire loss estimates up to $20bn

Weather forecasts for early next week suggest fires could continue to spread

Want to read this article?

Read Next

US workers comp renewals remain competitive

Aon urges firms to heed UK warnings on AI risk

Consilium brings CyberCube’s analytics to clients worldwide

UK unprepared for scale of wildfire risk

Aon raises data centre capacity to $5bn

US workers comp renewals remain competitive

Aon urges firms to heed UK warnings on AI risk

Consilium brings CyberCube’s analytics to clients worldwide

UK unprepared for scale of wildfire risk

Aon raises data centre capacity to $5bn

Want to read this article?

Read Next

US workers comp renewals remain competitive

Aon urges firms to heed UK warnings on AI risk

Consilium brings CyberCube’s analytics to clients worldwide

UK unprepared for scale of wildfire risk

Aon raises data centre capacity to $5bn

Related Articles