At $35bn, the mid-point of estimated insurance industry losses from the Los Angeles wildfires, Fitch Ratings projects that Europe’s four largest reinsurers may see 30% of their 2025 natural catastrophe budgets depleted.
Using a mid-point industry loss of $35bn, Fitch estimates that Munich Re, Swiss Re, Hannover Re, and SCOR would absorb losses equal to 30% of their total projected catastrophe budgets for 2025.
If industry losses reach $45bn, roughly 38% of their budgets would be affected.
Fitch notes that European reinsurers have reduced exposure to high-risk wildfire areas in California since the major fires of 2017 and 2018. However, these Los Angeles wildfires have been severe, and given the size of insured losses, reinsurers will still face a significant impact.
Most losses will come from property and casualty reinsurance, but specialty reinsurance and, in some cases, direct insurance coverage could also contribute.
Despite the financial strain on catastrophe budgets, Fitch does not expect a major effect on earnings or capital. If insured losses settle at $35bn, the four reinsurers could face losses amounting to 15% of their expected combined earnings or 3% of their total shareholders’ equity.
Before the wildfires, Munich Re, Swiss Re, and Hannover Re had raised their earnings targets for 2025. Fitch does not anticipate any revisions to these projections. Munich Re executives reaffirmed their €6bn profit target for 2025 despite wildfire-related claims.
Regarding reinsurance pricing, Fitch states that it is too early to determine how these losses will affect rates.
The losses may slow the general rate decline from recent highs, but we do not expect a significant increase except in particularly high-risk areas
The Palisades and Eaton fires are now 70% and 95% contained, respectively, according to the California Department of Forestry and Fire Protection. CoreLogic provided the highest range at $35 bn to $45 bn, followed by Verisk’s estimate of $28 bn to $35 bn. Moody’s RMS, which was first to publish, estimated losses between $20 bn and $30 bn.
