As the raging wildfires catastrophe at Los Angelis (LA) sustained its damaging impacts on lives and properties, analysts at Evercore ISI have estimated that insurance industry losses from the wildfires will be in the $20 billion to $25 billion range.
The experts also expect the fires to be treated as one event which could help primary carriers reach their reinsurance coverage.
A news report today from Reinsurance News, a leading risk-underwriting focused online medium, indicated that 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.
The online medium reports that it is 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.
This is even as analysts pointed out that with strong Santa Ana winds expected to return, peaking around Tuesday, the fire weather forecast was not ideal for containment for the next few days.
Analysts at Evercore ISI said: “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.”
The analysts see the ugly inferno as manageable for the insurers in their universe, and also expect losses to reinsurers to be minimal, adding that they expect the fires to be treated as one event, which could help carriers reach reinsurance protection.
The risk underwriting experts further clarified: “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.”
Last week, Mercury General Corporation stated that, based on a preliminary assessment, it expected the fires to surpass its reinsurance retention level of $150 million.
According to the latest news report, the Evercore insured loss range of up to $25 billion is the highest so far, but as the fires continue to burn just as 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.
In his estimation, a research director at CoreLogic, Jon Schneyer, is reported to have said that a “$20 billion to $30 billion insured loss event is now on the table.”
Similarly, analysts at Jefferies have been quoted as estimating in their preliminary assessment of the the potential insurance industry loss from the LA wildfires at between $10 billion to $20 billion range, as they expect losses to be at the higher end given how little of the fires is contained.
