LA wildfires: CoreLogic initial insured loss estimate is $35bn to $45bn

CoreLogic, the risk modelling and catastrophe data company, has provided an initial estimate for insured losses from the Los Angeles, California wildfires, saying the total is expected to fall in a range from $35 billion to as high as $45 billion.

CoreLogic noted that both of the main wildfires that are burning remained only less than 50% contained as of Thursday afternoon, meaning the final insurance and reinsurance market loss estimates may differ.

In a recent update this afternoon, the California fire authorities said the Palisades fire remains only 22% contained, while the Eaton fire is now 55% contained.

The risk modelling and catastrophe data specialist company said a final insured loss estimate will be provided once the wildfires have been fully contained.

CoreLogic is the first catastrophe risk modeller to issue a public estimate for the potential insurance and reinsurance market financial exposure to the still burning wildfires in California.

The estimate for insurance market losses of between $35 billion and $45 billion is based on CoreLogic’s analysis across residential and commercial exposures for the Eaton and Palisades Fires in Los Angeles, California.

The company explained, “This analysis of insured damage for both residential and commercial properties accounts for both fire and smoke damage as well as demand surge, debris removal, clean up and Additional Living Expenses (ALE). The majority of losses are to residential properties.

“Many of the potentially impacted properties are high value homes, so even moderate damage from the fires or smoke could result in costly claims.”

Tom Larsen, Senior Director of CoreLogic Insurance Solutions, also said, “The destruction caused by these fires is anticipated to be the most expensive in the state’s history with effects on the insurance industry that will persist into the future.

“This event highlights the paramount challenge for homeowners and the insurers that support them – the increasing density of homes and properties near the wildlife-urban-interface. Los Angeles is a resilient community, and as they look to rebuild it will be essential to design or redesign with mitigation practices in mind, so an event of this magnitude never happens again.”

The estimate aligns with where analyst estimates have risen to, given they had been in a range of $15 billion to $25 billion, then most rose towards the upper-half of that range, while some others have reached the $30 billion level and higher.

An industry loss of between $35 billion and $45 billion makes these wildfires by far the most costly loss event for that peril ever for the insurance market.

If the loss settles in this range it will certainly trigger reinsurance and perhaps even some retrocessional recoveries, although the majority of the loss would still be expected to fall to private insurers and California’s FAIR Plan, it is assumed. At this level of industry impact, the Fair Plan could exhaust its reinsurance and other financing resources, it has been speculated.

Catastrophe bond exposure is harder to evaluate at this time. But at this level of industry loss, the erosion of exposed multi-peril aggregate cat bond attachments will naturally be more significant in every case.

It’s also worth noting that a catastrophe industry loss event of this magnitude could have ramifications for sector capital, risk appetites and as a result some effect on the future direction of property catastrophe reinsurance prices.

You can see a list of the costliest US wildfire insured loss events in the table below, taken from a report from reinsurance broker Gallagher Re:

Also read:

– Alternative capital can provide wildfire capacity, but pricing a sticking point: Morningstar DBRS.

– Stone Ridge marks mutual cat bond / ILS funds the most on LA wildfires.

– Euler ILS Partners puts wildfire industry loss at $15bn-$17bn, highlights BI / ALE uncertainty.

– Wildfire losses may cause re/insurance pricing to firm as payback sought: Berenberg.

– BMS says LA wildfire insured losses likely to exceed $25bn. KBW analyses up to $40bn.

– Autonomous raises its LA wildfire loss estimate to $25bn, $18bn from Palisades fire.

– California wildfires: Subrogation topic raised, as utilities come into focus.

– ICEYE satellite analysis: Over 10,900 buildings likely destroyed in Palisades and Eaton fires.

– Catastrophe bond price movements due to LA wildfire exposure.

– Evercore ISI: LA wildfire insured loss $20bn-$25bn. Could be one event under reinsurance.

– LA wildfire losses to “notably exceed” $10bn, could approach $20bn: Gallagher Re.

– Mercury says LA wildfire losses to exceed reinsurance retention.

– LA fires: “Considerable attachment erosion” likely for some aggregate cat bonds – Steiger, Icosa.

– LA wildfires: Over 10k structures destroyed. Insured losses up to ~$20bn, economic $150bn.

– LA wildfire losses unlikely to significantly affect cat bond market: Twelve Capital.

– LA wildfires unlikely to cause meaningful catastrophe bond impact: Plenum Investments.

– JP Morgan analysts double LA wildfire insurance loss estimate to ~$20bn.

– LA wildfires: Analysts put insured losses in $6bn – $13bn range. Economic loss said $52bn+.

– LA wildfires bring aggregate cat bond attachment erosion into focus: Icosa Investments.