S&P has noted that while significant losses from the wildfires engulfing Los Angeles County in the first two weeks of 2025 could rapidly deplete the catastrophe budgets of U.S. primary insurers, the impact will be manageable for global reinsurers, with no major impact on earnings.
S&P said in a new report, “The wildfires in LA County have reached unprecedented levels, as the city grapples with a series of rapidly spreading blazes fueled by dry conditions and powerful Santa Ana wind gusts.
“With the event ongoing, potential economic and insured losses remain fluid and much will depend on the duration and intensity of the uncontrolled spread.”
Analysts at J.P. Morgan recently doubled their preliminary insured loss estimate for the wildfires to $20 billion or more, making it potentially the costliest insured wildfire loss event in California’s history.
Economic losses from the wildfires have also increased, with forecaster AccuWeather placing its preliminary estimate between $135 billion and $150 billion.
Nonetheless, S&P stated that while expected losses are steep, it believes many of its rated insurers have the capital resilience to absorb them, after strong results in the first nine months of 2024, and likely for the year.
The firm continued, “We do not expect the LA wildfires to trigger rating changes, although we could see modest depletion in 2025 catastrophe budgets for insurers exposed to the incident.
“Embedded in our forecast 2025 combined ratio (loss and expense) of 98% is $90 billion of catastrophe load (or 9 percentage points on the combined ratio) for U.S. primary insurers. A preliminary industry insured loss from the LA wildfires of $10 billion-$15 billion would affect our forecast of catastrophe losses for 2025 by 1.3 percentage points.”
S&P additionally observed that the impact of the wildfires will be manageable for global reinsurers, with no major impact on earnings.
“This is because we estimate losses will stay within their natural catastrophe budgets for first-quarter 2025,” the rating agency explained.
S&P continued, “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.
“Moreover, reinsurers are entering 2025 with robust capitalization, supported by strong earnings in 2023-2024, which helped the industry’s returns to exceed its cost of capital.
S&P concluded, “The reinsurance sector remains disciplined regarding its appetite for frequency losses, maintaining high attachment points for coverage.
“While property catastrophe reinsurance pricing has passed its peak, with selective moderate price declines in recent renewals, the sector remained committed to defending its terms and conditions and higher attachment points.”
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