Analysts at Evercore ISI have increased their insured loss base case for the ongoing wildfires in Los Angeles to a range of $25 billion to $30 billion, stating that although an industry loss of this level will hit reinsurers, it’s not enough to alter the trajectory of reinsurance pricing with decreases still expected at the mid-year renewals.
The increased loss range announced by Evercore follows preliminary estimates from brokers and catastrophe risk modellers CoreLogic and Moody’s RMS, which range from a low of $20 billion to as much as $40 billion, with most landing between $20 billion and $30 billion.
Losses of this magnitude are still viewed as manageable for Evercore’s coverage, and while the primary market is expected to assume most of the industry loss, at $25 billion to $30 billion, reinsurers will be impacted to a similar level to Hurricane Milton, according to Evercore.
Across the Bermudian reinsurers, this translates to a loss of $300 million to $400 million, and Evercore estimates that overall, the reinsurance industry will take between 10% and 15% of the industry loss.
However, analysts “do not think this will be enough to change the trajectory of reinsurance pricing which we still think will be down 10-20% at mid-yr renewals (a ~$4.5b loss for global reinsurers is <1% of total reinsurance capital).”
Soon after the outbreak of the wildfires still burning across parts of Southern California, other equity analysts suggested that the event could cause reinsurance pricing to firm after decreases at the January 1st, 2025, renewals, although this isn’t the view held by Evercore.
Globally, property catastrophe reinsurance rates declined at the 1.1 renewals with market commentary pointing to the fact the hard market cycle has now peaked. At the same time, structural changes, notably higher attachment points and tighter terms and conditions secured by reinsurers through 2023 and 2024 were maintained at Jan 1 as underwriting discipline prevailed, and reinsurers were eager to grow their property books with increased appetite.
Of course, given the severity of the fires and the recent history of re/insurers pulling back from frequency risks in places like California, there’s likely to be much discussion around wildfire re/insurance pricing in the region, but overall, Evercore analysts feel a $30 billion industry loss is insufficient to drive price firming at the upcoming June and July renewals, which are heavily focused on the U.S.
In its recent analysis, Evercore also comments on Mercury General Corporation, who after revealing that its wildfire losses will likely exceed the $150 million retention under its per-occurrence reinsurance coverage, said yesterday that it was yet to decide whether to treat the fires as two separate events under its reinsurance agreements.
Analysts state that this is “likely due to it coming close to incurring losses over $150m above the top end of its $1.44b reinsurance tower if considered a single event (implying a $1.6b loss which we calculate at a ~$30b industry loss).”
There’s also losses to the California FAIR Plan to consider, which announced recently, that 22% of the Palisades and 12% of the Eaton structures damaged are covered by the Plan, so below the 31% historical average in fire impacted areas.
“We still think our ~$6b FAIR plan loss estimate feels right which implies an assessment for the industry,” Evercore said.
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