Wildfires Ravage Los Angeles, Insurance Stocks Plummet
Catastrophic Losses Loom Large
The devastating wildfires sweeping through Los Angeles have sent insurance stocks tumbling, with analysts predicting insured losses could reach a staggering $20 billion, making it the costliest disaster in California’s history. As the full extent of the damage becomes clear, the financial implications are being felt across the industry.
Fierce Winds Subside, But Forecasters Warn of Return
A brief respite from the intense winds allowed firefighters to make progress in containing the infernos, but forecasters caution that strong gusts could return over the weekend, further exacerbating the situation.
Insurance Industry Reels from Estimated Losses
J.P. Morgan has doubled its forecast of insured losses to over $20 billion, while Wells Fargo expects similar losses, with the total economic hit potentially exceeding $60 billion. The Pacific Palisades area, one of the most expensive neighborhoods in the US, is particularly affected, with insurance costs likely to skyrocket in the aftermath.
California Insurance Commissioner Takes Action
To provide stability amidst the devastation, California Insurance Commissioner Ricardo Lara has invoked moratorium powers to suspend policy non-renewals and cancellations for one year. Lara urged insurance companies to halt pending non-renewals and cancellations issued to homeowners before the fires began, ensuring wildfire survivors receive their entitled benefits as soon as possible.
Insurance Market Faces Uncertainty
The California property insurance market has been challenging, leading many insurers to re-evaluate their product offerings. Morningstar DBRS notes that while leading US property insurers are in good financial condition, the market has become increasingly difficult. The S&P Insurance Select Industry index plummeted 3.2% on Friday.
Mounting Human Toll and Economic Losses
The fires have claimed 10 lives and destroyed nearly 10,000 structures, with private forecaster AccuWeather estimating damage and economic loss at $135 billion to $150 billion. Moody’s Ratings predicts an arduous recovery and a surge in homeowners’ insurance costs.
Analysts Weigh In on Insured Losses
Raymond James estimates insured losses between $11 billion and $17.5 billion, while Morningstar DBRS pegs them in excess of $8 billion. The largest US primary insurers have significantly reduced exposure to California due to costly and unquantifiable wildfire risk.
Insurance Stocks Take a Hit
Travelers fell 4% in afternoon trading, while Mercury General slumped 22%. Allstate dropped 7%, Chubb and AIG fell 4% and 1.3%, respectively. European insurers, including Beazley, Lancashire, and Hiscox, also closed between 3% and 5.7% lower.
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