US insurance stocks tumbled on Friday amid grim forecasts that the ongoing wildfires surrounding Los Angeles could lead to insured losses of up to $20 billion. Analysts suggest this catastrophe may become the costliest disaster in California’s history.
While a brief pause in the relentless winds allowed firefighters to make some headway, forecasters warned of a resurgence over the weekend, threatening to reignite flames and deepen the devastation.
A Snapshot of the Wildfire’s Financial Toll
- $20 billion – Estimated insured losses by J.P. Morgan, doubled from earlier projections.
- $60 billion – Total expected economic impact, according to Wells Fargo.
- $135–150 billion – AccuWeather’s estimate of damage and economic loss.
| Insurer/Analyst | Estimated Insured Losses ($bn) | Notes |
|---|---|---|
| J.P. Morgan | 20+ | Doubling initial estimates. |
| Raymond James | 11–17.5 | Likely the most expensive wildfire in US history. |
| Morningstar DBRS | 8+ | Based on preliminary evaluations. |
Disruption in California’s Insurance Landscape
Regulatory Response
California Insurance Commissioner Ricardo Lara invoked emergency powers to enforce:
- A one-year moratorium on all policy cancellations and non-renewals.
- A halt on pending non-renewals issued before the fires began.
Lara stated, “My primary concern at this very moment is to ensure that wildfire survivors receive the insurance benefits to which they are entitled to as soon as possible.”
A Tale of Two Markets
The Pacific Palisades, a neighbourhood synonymous with opulence, underscores the paradox of California’s insurance market. Despite its multimillion-dollar mansions, insurance rates in this area were among the country’s lowest.
Post-wildfire, this affordability may vanish. Losses of this magnitude, coupled with recent regulatory changes, are reshaping the market.
Morningstar DBRS noted, “The California property insurance market has been challenging… leading many insurers to re-think their product offering, including an outright exit from the market.”
Devastation and Industry Fallout: Wildfires Leave a Trail of Destruction
The fires have already destroyed nearly 10,000 structures and claimed 10 lives, tearing through Los Angeles’s most iconic neighbourhoods, including the Hollywood Hills.
Key Observations:
- Catastrophe losses are rising, with insurers retreating from high-risk regions such as California and Florida.
- The S&P Insurance Select Industry Index (.SPSIINS) fell 3.2% on Friday.
Industry-Wide Turmoil
- Travelers: Declined 4%.
- Mercury General: Shares dropped 22%, with losses expected to exceed $150 million in reinsurance retention.
- Allstate: Fell 7%.
- European insurers: Beazley, Lancashire, and Hiscox closed down by 3–5.7%.
Climate Risks and Regulatory Challenges Reshape the Insurance Landscape
This disaster amplifies a pattern:
- Increasing natural disasters are making some regions uninsurable.
- Strict state regulations, combined with rising costs, are forcing insurers to rethink their strategies.
Jefferies analysts warned, “The largest U.S. primary insurers have meaningfully reduced exposure to California due to costly and unquantifiable wildfire risk, combined with the state’s strict pricing controls.
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