Analysts at Evercore ISI have estimated that insurance industry losses from the Los Angeles wildfires will be in the $20 billion to $25 billion range, and also expect the fires to be treated as one event which could help primary carriers reach their reinsurance coverage.
The fires continued to burn and spread over the weekend, and as of Saturday afternoon UK time, it was reported that the largest of the fires, the Palisades Fire, had destroyed 5,300 structures, while the Eaton Fire had damaged or destroyed more than 7,000 structures.
It’s likely that these figures have since increased, and media reports suggest that the fires across parts of southern California have now damaged or destroyed more than 12,000 structures. Further, with strong Santa Ana winds expected to return, peaking around Tuesday, the fire weather forecast is not ideal for containment for the next few days.
“While the situation is fluid, we think the insured losses will be in the $20b-25b range, with potential for it to move higher if the fires continue to spread uncontained,” say analysts at Evercore ISI.
Evercore analysts see this event as manageable for the insurers in their universe, and also expect losses to reinsurers to be minimal, but go on to say that they expect the fires to be treated as one event, which could help carriers reach reinsurance protection.
“Many reinsurance clauses on brush fires have both an hour and distance clause, which is typically 168 – 240 hours and a radius of 150 miles. Our quick distance check shows the Palisades and Eaton fires are ~25 miles apart, and began within 2 days of one another so fit within both clauses that allow them to be treated as one event,” explain analysts.
Last week, Mercury General Corporation said that it expects the fires to exceed its reinsurance retention level of $150 million, based on a preliminary assessment.
The Evercore insured loss range of up to $25 billion is the highest so far, but as the fires continue to burn, analysts at BMO Capital Markets have also updated their estimate from an initial low single-digit billion dollar loss, which they reported soon after the event, to a roughly $20 billion insured loss estimate. At this level, BMO also expects reinsurance coverages to be hit for certain insurance companies, highlighting Chubb, Allstate, Cincinnati Financial, and The Hartford as carriers expected to benefit from recoveries under their respective occurrence reinsurance programs.
Another insured loss estimate has come from Jon Schneyer, a research director at CoreLogic, who is reported to have said that a “$20 billion to $30 billion insured loss event is now on the table.”
Analysts at Jefferies have also commented on the potential insurance industry loss from the LA wildfires, noting that although preliminary estimates are in the $10 billion to $20 billion range, they expect losses to be at the higher end given how little of the fires is contained.
Interestingly, Jefferies analysts also commented on the single or multiple events question.
“Reinsurance treaties typically have hours and radius clauses. A typical hours clause would group a same peril occurring over a 7-10 day period as one. Radius restrictions would often group same perils occurring within a 250-mile radius. While these are typical terms, there is room for variance. We do not believe that it is possible to determine which contracts group the fires into one event and which would not, but we would expect the majority of reinsured exposure to be lumped into a single event,” say analysts.
Reinsurance broker Gallagher Re said recently that it expects total aggregated losses from the LA wildfires to notably exceed $10 billion, and there are other estimates also out there that suggest an ultimate insurance and reinsurance market loss nearer $30 billion is possible, especially if the fires continue to spread and can’t be controlled.
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