Insured loss for LA wildfires likely to be largest wildfire on record: Barclays By Investing.com
Investing.com — Barclays (LON: ) has released an analysis of the potential financial impact of the California wildfires on the insurance industry, predicting that insured losses in the industry will range between $17 billion and $30 billion.
According to the bank, this is expected to be the largest forest fire on record, with an estimated 10,000 to 25,000 structures potentially destroyed.
For US (re)insurance stocks, Barclays foresees a manageable impact on the lower end of loss estimates. The most affected companies are expected to be primary insurers such as Chubb (NYSE: ), Travelers (NYSE: ), Allstate (NYSE: ), Hartford Financial (NYSE: ), Fidelis and American International Group (), with an average performance of about 1% of their book value per share (BVPS).
If losses reach the higher end of the range, reinsurers such as Everest Group, RenaissanceRe (NYSE: ), Arch Capital Group (NASDAQ:), and Hiscox (LON:) could face more significant impacts, up to 3-4% of BVPS.
In the European (re)insurance sector, analysis suggests that a significant loss from wildfires could change market dynamics ahead of the recovery in June and July, despite the expectation of a high return on reinsurance capital (ROE) in the first half of 2025.
However, “this wildfire is unlikely to change the direction of prices,” Barclays strategists said.
From a credit standpoint, Barclays rates wildfires as a manageable risk to the financial strength of US property and casualty (P&C) insurers, citing the industry’s strong capitalization of over $1.1 trillion in regulatory capital.
Most insurers that offer California homeowners insurance are geographically diverse, which helps reduce the volatility of losses. Furthermore, the trend of insurers pulling out of the California homeowner market due to inadequate pricing could reduce their share of industry losses.
Both Moody’s (NYSE: ) and S&P commented on the situation, with S&P not expecting the wildfires to trigger rating changes and Moody’s noting that recent risk-taking actions and adjusted coverage terms should ease policyholders’ exposure to fire losses.
On the other hand, European reinsurers could see a more pronounced effect on their capital positions due to the intensity of wildfires, the high value of insured assets and the prevalence of wildfire insurance.
“Primary insurers typically reinsure these types of risks,” notes Barclays.
Among these companies, the company predicts that Scor (EPA:) could be the most affected, given the current weak Solvency II ratio.
