The recent wildfires in Los Angeles could use up more than 30 per cent of the natural catastrophe budgets set by Europe’s largest reinsurers for 2025, according to Fitch Ratings.
Global insured losses from the fires are projected to significantly surpass previous wildfire records, with industry estimates ranging from US$25 billion to US$45 billion.
If total insured losses reach US$35 billion, the mid-point of current estimates, Europe’s four largest reinsurers — Swiss Re, Munich Re, Hannover Re, and Scor — could collectively lose 30 per cent of their expected 2025 catastrophe budgets.
At the higher estimate of US$45 billion, these losses could climb to 38 per cent of their budgets.
A US$35 billion loss would likely reduce the combined earnings of the four reinsurers by about 15 per cent and shareholders’ equity by around 3 per cent, Fitch estimates.
Despite the potential impact, the agency observes that losses are expected to remain within rating sensitivities due to the strong capital positions and diversified risk exposures of these companies.
European reinsurers have reduced their exposure to high-risk wildfire zones in California since 2017 and 2018 by adopting excess-of-loss treaties and increasing attachment points.
However, Fitch says that the scale of insured losses means these reinsurers will still face material impacts, primarily in P&C reinsurance. Some may also incur losses in specialty reinsurance and, in certain cases, from directly written insurance policies.
