At $35 billion, roughly the mid-point of insurance industry loss estimates from the devastating Los Angeles wildfires, Fitch Ratings estimates that 30% of the aggregate natural catastrophe budgets set by Europe’s big four reinsurers for 2025 may be eroded.
With the two main fires, Palisades and Eaton now 70% and 95% contained, respectively, according to the most recent update from the California Department of Forestry and Fire Protection, this week has seen risk modellers release preliminary industry loss estimates.
CoreLogic’s is the highest at $35 billion to $45 billion, followed by Verisk’s range of $28 billion to $35 billion, and Moody’s RMS’ range of $20 billion to $30 billion, which was the earliest of the three to come out.
Based on a mid-point industry loss of around $35 billion, Fitch estimates that for Munich Re, Swiss Re, Hannover Re, and SCOR, this would translate into aggregate losses of around 30% of their combined nat cat budgets anticipated to be set for 2025.
“We estimate that the top end of industry estimates, USD45 billion, would lead to the erosion of about 38% of their catastrophe budgets,” says Fitch Ratings.
As highlighted by Fitch in its report, European reinsurers cut their exposure to high-risk wildfire zones in the State of California since the costly fires of 2017 and 2018. However, these LA wildfires have been extremely damaging and given how big the overall insured loss will be, reinsurers will still be materially affected, notes Fitch.
“Most of their losses will be from property and casualty reinsurance business, but they could also face significant losses from specialty reinsurance and, in some cases, from their directly written (“primary”) insurance cover,” says the ratings agency.
While the hit to Europe’s big four cat budgets will be considerable, Fitch does not foresee material implications for the companies’ earnings and capital. If insured losses land at $35 billion, Fitch estimates this would generate losses for the four reinsurers equivalent to about 15% of their expected combined earnings or about 3% of their combined shareholders’ equity.
Prior to the outbreak of the LA wildfires, Munich Re, Swiss Re, and Hannover Re all set higher earnings targets for 2025, but despite the impact, Fitch doesn’t expect any adjustments to their financial guidance for the year.
As we wrote yesterday, Munich Re executives confirmed the firm’s €6 billion profit target for 2025 despite the impacts of the wildfires.
In terms of rates, Fitch says that it’s still too early to tell how these fires will influence reinsurance pricing.
“The losses may slow the general decline from recent highs, but we do not expect them to drive a significant increase in rates, other than in particularly high-risk areas,” says Fitch.
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