The ongoing wildfires in Los Angeles are expected to significantly impact the 2025 financial statements, but specialist re/insurance and investment manager Twelve Capital believes that the insurance stocks in its coverage universe have sufficient solvency and earnings capacity to withstand even the highest insured loss estimates.
Twelve Capital notes that these wildfires are likely to rank among the costliest in history. The fires remain uncontained and continue to cause widespread destruction.
According to official filings, major U.S. insurers such as Travelers, Allstate, and Chubb have the largest exposure to the California market. Notably, the Farmers Insurance Exchange, operated by Zurich Insurance, is the second-largest writer in the state.
While fire losses are generally well reinsured, Twelve Capital highlights that there appears to be less reinsurance coverage for residential properties, which have been more affected by the fires than commercial or industrial properties.
Insuring homes in California has become increasingly challenging due to the frequent occurrence of wildfires and other natural perils. Several primary insurers have withdrawn from the market, leaving many homeowners underinsured or uninsured.
To address the growing unpredictability of such large-scale events, insurance companies are incorporating catastrophe budgets into their financial planning.
Additionally, major European reinsurers, including Swiss Re, Hannover Re, Munich Re, and Scor, have used favorable market conditions to strengthen their resilience buffers in preparation for significant loss events.
While Twelve Capital expects the four major reinsurers, along with AXA XL and Zurich, to absorb some of the wildfire losses, it remains confident that this catastrophic event will be manageable for insurance stocks.
Numerous analysts have commented on the fires and their potential impact on the re/insurance industry, with the latest reports suggesting losses could exceed $20 billion, potentially rising higher if the fires continue to spread.
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