LA Fires Could Consume 30% of European Reinsurers’ Natural Disaster Budgets: Fitch

The Los Angeles wildfires could consume more than 30% of the aggregate natural catastrophe budgets set for 2025 by Europe’s four largest reinsurers – Swiss Re, Munich Re, Hannover Re and SCOR, according to a Fitch Ratings commentary.

Insured losses borne by global insurers and reinsurers will materially exceed highs from past wildfire events, with current industry estimates ranging from US$25 billion to US$45 billion, the ratings agency said.

While the impact of the fires on European reinsurers’ natural catastrophe budgets will be significant, “the implications for their earnings and capital are not likely to be material,” said Fitch in its commentary titled “LA Fires May Consume 30% of European Reinsurers’ 2025 Catastrophe Budgets,” which it published on Jan. 22.

Update: Re/Insurer Losses From LA Wildfires Expected to Be Significant but Manageable

In a recent report, S&P agreed that the price tag for the LA wildfires will be steep. However, S&P believes that many of its rated insurers have the capital resilience to absorb the losses, “after strong results in the first nine months of 2024 (and likely for the year).”

“The reinsurance sector remains disciplined regarding its appetite for frequency losses, maintaining high attachment points for coverage. While property catastrophe reinsurance pricing has passed its peak, with selective moderate price declines in recent renewals, the sector remained committed to defending its terms and conditions and higher attachment points,” according to S&P in its report titled “Insurers Can Absorb Losses Amid Escalating Los Angeles Wildfires,” which was published on Jan. 9.

Fitch explained that European reinsurers reduced their exposure to high-risk wildfire zones in California after the fires of 2017 and 2018 by shifting from proportional to excess-of-loss treaties and increasing attachment points.

“However, they will still be materially affected given the scale of overall insured losses,” the report said, noting that most of reinsurers’ losses will be from property/casualty business, but they also could “face significant losses from specialty reinsurance and, in some cases, from their directly written (primary) insurance cover.”

If overall insured losses for global insurers and reinsurers total US$35 billion – around the mid-point of industry estimates – Fitch estimates this would translate into aggregate losses for Europe’s four largest reinsurers, equating to about 30% of their combined natural catastrophe budgets for 2025.

“We estimate that the top end of industry estimates, US$45 billion, would lead to the erosion of about 38% of their catastrophe budgets,” Fitch continued.

Global insured losses of US$35 billion would generate losses for the four reinsurers equivalent to about 15% of their expected combined earnings or about 3% of their combined shareholders’ equity, Fitch estimated, explaining that these are rough estimates and the impacts will vary among the companies.

Before the fires, Hannover Re, Munich Re and Swiss Re all set increased earnings targets for 2025, but Fitch does not expect them to alter their financial guidance, “given the prudence embedded in their earnings targets to provide a buffer against large-scale loss events.”

Indeed, Munich Re executives confirmed this week that its 2025 profit target would not be affected by the wildfires, according to a company representative in an emailed statement.

Photograph: A worker surveys the damage from the Palisades Fire in the Pacific Palisades neighborhood of Los Angeles, on Monday, Jan. 13, 2025. (AP Photo/John Locher, File)

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Natural Disasters
Europe
Louisiana
Reinsurance