JP Morgan raises its forecast for insured losses from the Los Angeles wildfires to $20 billion, while AccuWeather estimates economic losses at $135-150 billion.
Since January 7, the Pacific Palisades, Eaton and Hurst fires, along with several smaller fires, have combined to form a “firestorm” triangle that covers more than 11,600 hectares, damaging or completely burning more than 10,000 structures and forcing more than 180,000 people to evacuate in Los Angeles. US President Joe Biden has described it as the “fastest-spreading and most destructive wildfire in California history.”
Analysts are still assessing the financial impact of the disaster. In just a few days, many organizations have raised their estimates of the damage caused by the wildfires. On January 10, JP Morgan doubled its forecast for insured losses to $20 billion. Wells Fargo gave a similar figure, warning that the total economic cost of the disaster could be more than $60 billion.
Private weather forecaster AccuWeather even estimated the economic cost at $135-150 billion, signaling a difficult recovery and skyrocketing homeowner insurance premiums.
Houses burn in the Pacific Palisades area (Los Angeles). Photo: Reuters
“It will take weeks to months to determine the extent of the insured losses. However, the Los Angeles wildfires could be among the most expensive in California history,” Moody’s Ratings said.
Raymond James forecasts insured losses of $11 billion to $17.5 billion, saying the disaster could be the most expensive wildfire in U.S. history. Analysts at Morningstar DBRS maintained their forecast of insured losses of more than $8 billion.
At the close of trading on January 10, U.S. insurance stocks fell across the board. Travelers shares fell 4%. Mercury General fell 22%, while Allstate lost 7%. Chubb and AIG also fell 4% and 1.3%, respectively.
Mercury General said on January 10 that it needed more time to estimate the total damage. With the fires still likely to rage, the firm said its own losses would exceed $150 million without reinsurance.
Reinsurance is the process by which an insurer transfers part of its liability to a third party. This allows them to reduce their risk, improve capital management and ensure financial stability.
Shares in European insurers were also hit. Beazley, Lancashire and Hiscox closed down 3-5.7%.
Pacific Palisades is one of the most expensive areas in the US, home to many Hollywood A-listers and multimillion-dollar mansions. After this week’s fire, insurance premiums there could skyrocket.
“Although the leading real estate insurance companies in the US have a good financial foundation, the real estate insurance market in California has faced many challenges in recent times. This has caused many leading real estate companies to rethink their insurance products, even withdraw from the market,” Morningstar DBRS commented.
