Jean-Jacques Henchoz, Chief Executive Officer (CEO) of large European reinsurer Hannover Re, said this morning that an industry loss of between $30 billion and $40 billion from the Los Angeles wildfires could lead to a net loss for the firm of between €500 million and €700 million, which is above its large loss budget of €435 million for the first quarter.
Addressing journalists early this morning following the release of Hannover Re’s January 1st, 2025, reinsurance renewals outcome, CEO Henchoz and Sven Althoff, Member of the Executive Board for Property & Casualty, discussed the potential impacts of the Southern California wildfires on the company and the market.
Henchoz, in his opening remarks, said that although it remains too early to assess the size of this very significant loss for the economy and its impacts on insurance and reinsurance, the company has come up with an estimated range based on internal modelling and scenario analysis, so the figure isn’t a detailed bottom up estimate.
Based on its analysis, “we would expect that an industry loss of between $30 and $40 billion could result in a net loss in a range of €500 to €700 million for Hanover Re,” said the CEO.
“This would exceed our large loss budget of €435 million for the first quarter. The remaining large loss budget for the full year and our balance sheet strength will enable us to absorb this loss and meet our guidance for the full year, which remains unchanged, as communicated in November,” he added.
Hannover Re anticipates net income of around €2.4 billion for the 2025 financial year, and its large loss budget for the year stands at €2.1 billion. So, at the top end of the range, the LA wildfires would have eroded a third of Hannover Re’s large loss budget for the entire year, and around 24% of the budget at the lower end, and 29% at the mid-point of the range.
During the call, Althoff reiterated that while meaningful, Hannover Re is not increasing its guidance after the LA wildfires so early in the year, again highlighting the strength of the firm’s balance sheet.
Since the fires, there’s been debate in the industry around the impact on property catastrophe reinsurance rates at future 2025 renewals after some softening at the 1.1 2025 renewals, and both Althoff and Henchoz addressed this on the call.
“When it comes to forthcoming renewals in California, of course, the loss will be taken into account. So, it is fair to assume that the loss experience from the wildfires will, as a minimum trigger rate and premium increases, but in some instances, it may also trigger increases of retention levels of our ceding companies,” said Althoff.
“Recent loss experience for the industry, particularly the LA wildfires, will likely stabilize terms and conditions in 2025,” explained CEO Henchoz.
The reinsurer was also questioned on the potential for demand for backup covers following the wildfires, given losses for some cedents are expected to blow through their reinsurance coverage.
“We have not received any requests so far,” said Althoff. “So, I guess clients are reviewing the situation. Depending on the profile of their portfolio, they still have to decide whether they approach reinsurers on a one event or two event basis. If they do the latter, then of course, the question for backup coverage becomes even more prevalent. So, nothing concrete to report so far. But of course, in long-term partnerships, we would be open for discussions on that side. But a little too early to tell.”
Currently, industry loss estimates for the LA wildfires range from around $30 billion to $45 billion, although one reinsurer suggested last week that insured losses could be as much as $50 billion.
Fitch Ratings reported recently that the fires could erode more than 30% of the combined nat cat budgets for Europe’s big four, which includes Hannover Re, as well as Munich Re, Swiss Re, and SCOR.
For Hannover Re, this appears to be the case, at least based on the estimated €500 million to €700 million range provided today.
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