Los Angeles wildfires could result in $15bn US insurance losses
Early estimates of the wildfires engulfing Los Angeles County may rapidly deplete the catastrophe budgets of US primary insurers, according to S&P Global.
The report stated that preliminary estimates from third parties suggest the Los Angeles wildfires could result in $10bn-$15bn (£8.1bn-12.2bn) in industry insured losses.
S&P noted that this compares with the North California wildfires in 2017 (Tubbs Fire) and 2018 (Camp Fire), which caused nearly $16bn (£13bn) and $14bn (£11.38bn) in insured losses, respectively.
The wildfire erupted on Tuesday, and despite efforts of the firefighters, it became un-contained and spread as a result of strong winds.
It had ripped across parts of Los Angeles, leading to at least 10 deaths, burning down hundreds of buildings, and prompting evacuation orders for nearly 180,000 residents across the county.
S&P revealed that although expected losses are steep, it believes many of its rated insurers have the capital resilience to absorb them following strong results in the first nine months of 2024.
“Moreover, many major primary insurers in the admitted market, such as State Farm Mutual
Automobile Insurance, Allstate Corp, and Hartford Financial Services Group have either
reduced exposure to or exited the California homeowners insurance market over the past two years,” it added.
According to S&P Global Market Intelligence, the US property/casualty industry statutory surplus grew 8.7 per cent to $1.1 trillion through the first nine months of 2024, from $1 trillion at year-end 2023.
“However, insurers with less robust capital and more concentrated exposure, particularly
in Southern California, could face earnings and potential capital pressure, especially if natural
catastrophe losses exceed 2024,” it added.
The group added that “for now” it believes the impact of the wildfires is manageable for global reinsurers, with no major impact on earnings predicted.
It explained that “this is because we estimate losses will stay within their natural catastrophe
budgets for first-quarter 2025.”
“The wildfire represents the first major natural catastrophe loss in the year for the sector. However, it is still unclear how aggregate reinsurance coverage could be affected, given this will depend on developments over the remainder of the year,” S&P added.