The catastrophic wildfires ravaging the Los Angeles area have set new records for insured losses, with estimates ranging from $10 billion to $30 billion, according to a recent report from Fitch Ratings Inc. Despite the financial toll, property/casualty insurers and reinsurers are expected to maintain their ratings, Fitch said on Tuesday.
Unprecedented Losses in Residential Lines
The wildfire’s economic impact, projected between $150 billion and $275 billion, has put significant pressure on insurers, particularly in homeowners’ lines, which are absorbing the majority of claims. According to Fitch, California’s FAIR Plan, the insurer of last resort, will face substantial losses alongside major private insurers.
The majority of the damage is tied to residential and personal lines, with Fitch highlighting the significant exposure of California’s top homeowners’ insurers. Wells Fargo estimates that 85% of the insured losses will come from homeowners’ policies, while commercial lines will account for just 13.5%. Farmers Insurance, Liberty Mutual, and Travelers Cos. lead the commercial insurance market in the state, holding market shares of 6.9%, 6.6%, and 6.4%, respectively.
Impact on Reinsurers and Market Dynamics
While Fitch forecasts near-term earnings reductions for insurers and reinsurers exposed to claims from homeowners, auto, commercial property, and business interruption insurance, the broader market remains stable. However, the agency noted that weaker capitalized insurers could face heightened challenges, and reinsurance costs may rise as a result.
Some insurers have already begun reevaluating their exposure to wildfire risk. “Several insurance companies have stopped writing new business in the state after reassessing pricing and reinsurance market conditions,” Fitch said.
Rising Loss Estimates
Loss estimates for the wildfires continue to climb, with earlier predictions topping out at $20 billion. Fitch’s latest projections now suggest insured losses could reach as high as $30 billion, further highlighting the wildfire’s unprecedented scale.
As California grapples with the immediate and long-term fallout, the record-breaking losses underscore the challenges of insuring properties in high-risk wildfire zones. While insurers have demonstrated resilience, the events could spur further adjustments in underwriting, pricing, and reinsurance strategies across the industry.
Photo courtesy: Mick Rhodes