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California wildfire losses may approach or surpass $40bn

Poll reveals expert estimates on insured losses from Eaton and Palisades wildfires.
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A recent Reinsurance News poll sought insights from industry experts and observers regarding the estimated insured loss from the devastating Eaton and Palisades wildfires in Los Angeles, encompassing claims handled by the California FAIR Plan.

Of the hundreds of responses to our recent poll, 42% believe that insured losses related to this event will exceed $40 billion, with 28% expecting losses to settle between $30 and $40 billion.

At 24%, a slightly lower percentage of participants believe insured losses will be between $20 and $30 billion, while only 6% of participants anticipate industry losses of below $20 billion.

The Eaton and Palisades fires in Los Angeles started on January 7th, 2025, and are still burning.

The latest update from the California Department of Forestry and Fire Protection shows that the largest fire, in the Palisades area, is now 72% contained, covers more than 23,400 acres, and has destroyed 6,770 structures and damaged a further 904. The Eaton Fire, now 95% contained and covering more than 14,000 acres, has destroyed 9,418 structures and damaged 1,073.

Since the outbreak, risk modellers, brokers, and analysts have provided various insurance industry loss estimates, which currently range between $20 and $45 billion, with total economic losses expected to be much higher, highlighting the lack of insurance penetration in the State of California.

Analysts at Gallagher Re initially estimated insured losses at over $10 billion but revised their projection days later, forecasting a significantly higher range of $20 to $30 billion.

Like reinsurance broker Gallagher Re, Moody’s RMS analysts estimate that insured losses from the five Los Angeles fires, including the Palisades and Eaton Fires, will be between $20 and $30 billion.

The highest estimate so far comes from CoreLogic at $35 to $45 billion. More recently, Verisk pegged insured losses from the wildfires at between $28 and $35 billion, and Karen Clark & Company said today that the hit to the industry will be close to $28 billion.

The mid-point of the estimates from risk modellers is $31.125 billion, which suggests that these LA wildfires will certainly be the costliest ever in the U.S., ahead of the $10 billion ($13bn 2024 USD) from the Camp Fire in 2018.

All of the estimates from catastrophe risk modellers include losses to the California FAIR Plan, which are likely to be significant given recent exposure growth and the extent of the damage.

Market commentary points to the primary market assuming most of the losses from the fires as reinsurers pulled away from high-risk zones in California after the costly fires of 2017 and 2018.

So far, there haven’t been any major updates from re/insurers on their potential losses, but soon after the event, Mercury General provided a preliminary assessment of the wildfires, expecting losses to exceed its reinsurance retention level of $150 million.

In a recent update, the firm stated that it has already paid $80 million to policyholders primarily for living expenses and housing contents, and has started to pay out dwelling claims at the Coverage A limit for verified total losses. However, the insurer is yet to decide if it will treat the fires as two separate events under its reinsurance agreements.

For reinsurers, losses are expected to be lower but not insignificant and signal an active start to the year after a costly 2024 when cat losses breached $140 billion.

This morning, Fitch Ratings warned that for Europe’s big four reinsurers, Munich Re, Swiss Re, Hannover Re, and SCOR, industry losses of $35 billion, so around the mid-point of estimates, may erode more than 30% of their combined nat cat budgets for 2025, although analysts do not expect losses to be high enough to warrant any changes to profit targets for this year.

In fact, Munich Re said recently that while the fires will be a major loss for the firm, the impact “will certainly remain well below the provision we always have for natural catastrophes,” leading the firm to remain confident of its €6 billion profit target for 2025.

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