With the Palisades Fire now covering more than 23,000 acres and just 14% contained, and the Eaton Fire covering over 14,000 acres and 33% contained, according to California’s Department of Foresty and Fire Protection, analysts at KBW have raised their insured loss scenario estimate range for the Los Angeles wildfires to between $25 billion and $40 billion.
The fact multiple fires are ongoing, including the aforementioned blazes in Palisades and Eaton, the Hurst Fire, although this is now 97% contained, and the newer Auto Fire which is 0% contained, suggests continuing upside insured loss potential, notes KBW.
As we wrote yesterday, KBW analysts provided estimated net losses for primary insurers in its universe, based on an insurance industry loss of $20 billion, which suggested some reinsurance recoveries for some under their respective per-occurrence reinsurance towers.
Today, KBW has updated its initial estimates for primary insurance losses for scenarios of between $25 billion and $40 billion.
Assuming an industry loss of $25 billion, KBW estimates that net losses for Allstate, AIG, Assurant, Lemonade, Hippo, American Financial Group, and Horace Mann will be at or slightly above their respective per-occurrence reinsurance retentions.
Lifting the insured loss estimate to $30 billion or $35 billion brings occurrence reinsurance towers of other insurers, such as The Hartford, Cincinnati Financial, Skyward Specialty, and James River Group into focus.
At the top end of the range, $40 billion, as well as all of the companies mentioned above, analysts expect W.R. Berkley’s net losses for the fires to exceed its reinsurance retention.
Additionally, for some of the larger carriers in its world, such as Chubb, an industry loss of $40 billion is expected to drive LA wildfire losses of a significant $1.4 billion for the firm, and almost $1.8 billion for Travelers. However, these companies have extensive per-occurrence reinsurance towers with retentions of $1.75 billion for Chubb and $3.5 billion for Travelers.
For KBW’s analysis and estimates, there’s a number of caveats, including the use of 2023 direct written premium data to estimate individual carriers’ losses based on their direct market shares of the lines of business exposed to the fires. See our previous article on KBW’s LA wildfire analysis to see other caveats.
From what we understand, Mercury General is the only insurer so far to announce that its wildfire losses will likely exceed the $150 million retention level of its per-occurrence tower.
Primary insurers are expected to assume most of the losses from the ongoing wildfires in California as reinsurers moved away from frequency risks in the soft market and raised retentions. However, there’s a view that the fires will be treated as a single event, which should help insurers reach their reinsurance coverage.
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