As wildfires continue to grow across Los Angeles County and firefighters struggle to contain the flames, equity analysts have started to comment on potential insurance industry losses, forecasting losses of between $6 billion and $13 billion, while AccuWeather has released a preliminary total economic loss of up to $57 billion.

California wildfiresThe deadly wildfires began Tuesday morning and have forced the evacuation of more than 130,000 people, claimed five lives, and engulfed thousands of homes, while thousands of structures have already been destroyed by the Palisades and Eaton fires, as we reported late yesterday.

The Palisades Fire remains the largest of the ongoing blazes in LA, and has now reached some 17,000 acres, according to officials, but with wind gusts of up to 60 mph, the fire is still at 0% containment.

According to the California Department of Forestry and Fire Protection, the Eaton Fire now covers at least 10,600 acres and is also 0% contained. The smaller Hurst, Lidia, and Sunset fires all cover less than 1,000 acres, and are 10%, 40%, and 0% contained, respectively, while the Woodley and Olivas fires continue to burn as well.

The Los Angeles Times reported: “More than 2,000 homes, businesses and other buildings have been damaged or destroyed and at least five people are dead in wildfires scorching communities across Los Angeles County, making this one of the most destructive firestorms to hit the region in memory.”

Of course, it is still early days in terms of loss projection, but previous wildfires provide some useful context and enables forecasters and analysts to produce preliminary figures.

Forecaster AccuWeather has estimated that total damage and economic loss from the wildfires in Southern California will fall between $52 billion and $57 billion, and even warns that this figure could creep higher if the fires continue to spread rapidly into densely populated areas with very expensive structures.

“This is already one of the worst wildfires in California history. Should a large number of additional structures be burned in the coming days, it may become the worst wildfire in modern California history based on the number of structures burned and economic loss,” said AccuWeather Chief Meteorologist, Jonathan Porter.

For context, AccuWeather pegged economic losses from the wildfires in Maui in 2023 at $13 billion to $16 billion, and these fires drove insurance industry losses of between $3 billion and $4 billion, damaging around 2,200 structures.

The Camp Fire of 2018 damaged or destroyed around 23,000 structures and is the largest wildfire insurance industry loss event in history, at over $11.5 billion. This is followed by the Tubbs Fire of 2017 at a cost of around $8.9 billion, followed by the Woolsey fire in 2018 at closer to $5 billion.

According to Zillow data, the average home value in the Palisades and Eaton areas is around $3.5 million to roughly $1.25 million, respectively.

Analysts at Evercore ISI estimate that the insured loss from the current LA fires could double the $3-$4 billion industry losses from the Maui fire.

“With half that many structures already damaged in the current CA fires and given how quickly they are spreading (still 0% contained), we think the insured loss could easily be double the Maui fire loss (~$6-8b) but we will continue to monitor the situation,” said Evercore ISI analysts.

Analysts at BMO have also commented on the event, stating that at around a $3.5 billion insured loss, the fires could put downward risk on their earnings per share (EPS) estimates for the first quarter for re/insurers in their universe. At a loss of more than $7 billion, BMO analysts say it would start to put EPS at-risk for Q1 2025 results across the insurance and reinsurance sector.

Based on the data from late yesterday, when it was reported that more than 1,100 structures had been destroyed, BMO would expect an insurance market loss in the low-single-digit billions.

2017 and 2018 were the worst wildfire loss years on record, when wildfire insured losses totaled over $16 billion and $14 billion, respectively.

Analysts at Autonomous have provided the highest insurance industry loss estimate from the LA fires so far, explaining that it will likely be a more than $10 billion loss and could end up close to $13 billion.

Autonomous attributes around $8 billion of this total to the Palisades Fire, a combined $2.5 billion to the Eaton, Hurst, and Woodley fires, and a further $2.5 billion is estimated for additional commercial exposure risk.

“The affluent Pacific Palisades neighborhood is likely to pose the greatest potential insured loss risk, with home values averaging $3.5-4.5mm. Two proxies – 2018’s Camp Fire affecting Butte County and 2019’s Kincade Fire in Sonoma County – suggest high single-digit billion losses for the Palisades Fire alone after adjusting for home values in 2025 dollars and shifts in insurance coverage rates,” say analysts.

Adding: “Personal lines exposures have shifted significantly since 2019 in California, and most personal lines underwriters have been slow to restart underwriting new business in California (particularly in high-wildfire-risk areas), resulting in less insurance coverage. For homeowners who can still find coverage, deductibles are much higher today than six years ago, tempering the magnitude of potential losses today to some extent. For that reason, we ultimately derive a Palisades Fire loss of ~$8bn, moderately lower than the Camp and Kincade Fire proxies.”

Analysts go on to note that the fires in Pasadena, San Fernando, and Sylmar “still pose significant loss risk to non-high net worth coverages,” warning that the Eaton, Hurst, and Woodley fires could push residential losses above the $10 billion mark.

In terms of reinsurance, Autonomous explains that the event risk is likely minimal for now.

“Wildfires typically count towards both single event and aggregate reinsurance covers, and while this week’s wildfires would kick off 2025 aggregate limits, there is potential for modest losses on per-occurance treaties. That said, we don’t expect the Los Angeles wildfires to constitute a major reinsurance event given it’s still the beginning of the year and individual carriers’ market shares in California remain low. If 2025 shapes up to be like 2017-2020, wildfires later in the year may become more significant reinsurance events,” analysts said.

Update: JP Morgan analysts have now also provided a very preliminary estimate “to help investors gauge the likely impact on financials than to provide a precise impact of the likely claims.”

Analysts say that based on preliminary assessment of the affected area and historical events, insured losses could reach $10 billion.

As has Morningstar DBRS, warning that the fires will cause significant insurance industry losses in excess of $8 billion, depending on the ultimate number of properties being affected.

“This event reinforces the need for adequate rate increases on home insurance in California, based on forward-looking pricing and catastrophe modelling, as well as for additional fire prevention and mitigation initiatives. However, property insurance affordability is likely to remain a challenge in the state going forward, with many property owners opting to remain uninsured or under-insured because of the high costs,” Morningstar DBRS said.

 

Fuente: Reinsurance News

Enlace: https://www.reinsurancene.ws/analysts-peg-insured-la-wildfire-losses-at-up-to-13bn-economic-loss-put-at-more-than-52bn/