Insurers are bracing for up to $10 billion in California wildfire losses

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Insurers are bracing for losses of as much as $10 billion from the fires in Los Angeles after the blazes ravaged some of the most exclusive neighborhoods in California, according to early analyst estimates.

Ratings agency Moody’s said it “expected insured losses to run into the billions of dollars given the high value of homes and businesses in the affected areas,” while rival Morningstar DBRS said preliminary estimates indicated total insured losses of more than $8 billion.

JPMorgan analysts said in a “very preliminary estimate to help investors gauge the likely impact” that they believed insured losses “could approach $10 billion” based on an assessment of the affected area.

Specialized insurance companies focused on the most expensive homes faced high payments, JPMorgan said in its note to clients, with Allstate, Travelers and Chubb among the most exposed carriers in the state. Chubb has a particular focus on high net worth properties.

More than 100,000 residents were ordered to evacuate, as fire officials said about 13,000 structures were at risk.

Allstate and State Farm are among the insurers that recently stopped selling new home insurance policies in the state, blaming regulatory caps on rising prices that make it increasingly challenging to cover losses. Insurers have also abandoned customers in the most at-risk areas.

Last year, State Farm announced did not renew policies for 72,000 homes and apartments in the state, including 69 percent of the insurance plans in the area of ​​the upper Pacific Palisades engulfed by the last fires.

That left many homeowners turning to the California State-backed Fair Plan, as well as less regulated home insurance policies, so-called “non-admitted” insurers.

The Fair Plan, which at the end of September had just under $6 billion in fire exposure in the Pacific Palisades area alone, provides coverage of up to $3 million per property.

Insurers and analysts said the damage could rival that caused by the most devastating wildfires in recent years, including the 2018 wildfire in Butte County, California, which led to insured losses of $10 billion.

Climate change has intensified California’s wildfire season. New development stretching into fire-prone areas and wilderness areas surrounding major cities has also fueled the increase in insured losses, along with higher home values.

Morningstar DBRS said the fires “reinforce the need for appropriate rate increases for California home insurance” as well as prevention and mitigation initiatives.

But the rating agency noted that the affordability of property insurance in California was “likely to remain a challenge. . . with many owners choosing to remain uninsured or underinsured due to high costs.”

The cost of property catastrophe reinsurance, or insurance for insurers, also has rose abruptly.

RenaissanceRe and ArchCapital are among the reinsurers exposed to the fires, JPMorgan said, but the bank’s analysts predicted their losses would be lower than those for similar events before 2023.

That year, many reinsurers raised the threshold at which policies begin to provide coverage for losses, leaving primary insurers substantially more exposed than reinsurers.