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Insurers are bracing for losses of as much as $10bn from wildfires in Los Angeles after blazes ravaged some of the most exclusive neighbourhoods in California, according to early estimates from analysts.
Moody’s rating agency said it “would expect insured losses to run in the billions of dollars given the high value of homes and businesses in the impacted areas”.
JPMorgan analysts said in a “very preliminary estimate to help investors gauge the likely impact” that they believed insured losses “could approach $10bn” based on an assessment of the affected area.
Specialist insurance companies focused on the most expensive homes faced high payouts, JPMorgan said in a note to clients, with Allstate, Travelers and Chubb among the most exposed carriers in the state. Chubb has a particular focus on high-net-worth properties.
More than 100,000 residents have been ordered to evacuate, as fire officials said about 13,000 structures were at risk.
Allstate and State Farm are among the insurers that have recently stopped selling new home insurance policies in the state, blaming regulatory caps on price rises that made it increasingly challenging to cover losses. Insurers have also dropped customers in the most at-risk areas.
Last year, State Farm announced that it would not renew policies for 72,000 homes and apartments in the state, including 69 per cent of insurance plans in the upscale Pacific Palisades area engulfed by the latest wildfires.
That has left many homeowners turning to California’s state-backed Fair Plan as well as less-regulated home insurance policies, so-called “non-admitted” insurers.
The Fair Plan, which at the end of September had just under $6bn of exposure to wildfires in the Pacific Palisades area alone, provides coverage of up to $3mn a property.
Insurers and analysts said the damage could rival that caused by the most devastating fires of recent years, including the 2018 camp fire in Butte County, California, which led to insured losses of $10bn.
Climate change has intensified wildfire seasons in California. New development extending into fire-prone zones and the wildland areas surrounding major cities has also fuelled the rise in insured losses, along with higher home values.
The cost of property catastrophe reinsurance, or insurance for insurers, has also risen sharply.
RenaissanceRe and ArchCapital are among the reinsurers exposed to the wildfires, JPMorgan said, but analysts at the bank predicted that their losses would be lower than those for similar events prior to 2023.
That year, many reinsurers raised the threshold at which policies begin to provide coverage for losses, leaving primary insurers substantially more exposed than reinsurers.
