The ongoing wildfires in the Los Angeles area are expected to generate insured losses surpassing historical highs but are unlikely to affect the ratings of property and casualty (P&C) (re)insurers, according to Fitch Ratings.
Fitch asserts that ample capital levels, diversified risk exposure, and insurers’ capacity to increase premium rates should keep insured losses within rating sensitivities for affected companies.
Estimating insured losses remains challenging as the fires are not fully contained, with current projections ranging from US$10 billion to US$30 billion, says the rating agency.
Economic losses are anticipated to be significantly higher, estimated between US$150 billion and US$275 billion.
For rated (re)insurers, these losses are expected to reduce near-term earnings depending on exposure to claims from homeowners, auto, commercial property, and business interruption insurance.
Fitch states that companies facing losses that exceed earnings and reinsurance limits, thereby weakening capital relative to rating sensitivities, are most at risk for negative rating actions.
Weaker-capitalised insurers may feel pressure from these losses, potentially leading to increased reinsurance costs and further strain in a market where insurers have already begun retreating.
The agency observes that many insurance companies have reduced their presence in California, halting new business as they reassess wildfire risk, pricing strategies, and reinsurance conditions.
Historically considered a secondary peril compared to hurricanes and earthquakes, wildfire risk has become a growing source of insured losses in California.
The wildfire seasons of 2017 and 2018, which included the Tubbs and Camp Fires, saw insured losses of US$11.1 billion and US$12.5 billion respectively, according to Aon.
