LA Fires ‘Not Likely to Be Material’ for Reinsurers, Fitch Says

(Bloomberg) — The world’s biggest reinsurers look set to avoid a major dent to their finances from their exposure to the Los Angeles fires, according to Fitch Ratings.

The implications for earnings and capital are “not likely to be material,” the ratings firm said in a report.

Insured losses related to the fires, which have ravaged the second-most populous US city since the beginning of the year, are likely to land somewhere between $25 billion and $45 billion, according to industry estimates cited by Fitch. Assuming a level of $35 billion, the aggregate hit faced by Munich Re, Hannover Re, Swiss Re and Scor SE would represent 30% of their combined budgets for natural catastrophes, it said. 

Reinsurers have reduced their exposure to wildfire risk in California since the deadly blazes of 2017 and 2018. They’ve done so by shifting away from contracts that pay out based on a pre-negotiated percentage of losses, and instead provide coverage only if losses exceed a specified limit. At the same time, reinsurers have benefited from setting higher thresholds at which payouts begin.

Primary insurers in the US, meanwhile, may be more exposed. According to S&P, the Los Angeles fires may “rapidly deplete” the catastrophe budgets of US primary insurers and potentially lead to earnings pressure later in the year, if natural catastrophes in 2025 exceed the average for previous years.

“Although expected losses are steep, we believe many of our rated insurers have the capital resilience to absorb them,” S&P analysts said.

Last year, insured losses stemming from natural catastrophes reached $140 billion, which is the highest since 2017 and more than double the 30-year average, according to a recent estimate by Munich Re. 

Swiss Re, Munich Re and Hannover Re have all unveiled expectations that earnings in 2025 will exceed last year’s levels, in reports published before the Los Angeles fires erupted. Munich Re, which sells reinsurance to several US insurers, had set a profit target of €6 billion ($6.2 billion) for this year.

The companies’ financial guidance isn’t expected to change “given the prudence embedded in their earnings targets to provide a buffer against large-scale loss events,” according to Fitch.

S&P Global analysts have previously said they don’t expect the Los Angeles fires to have a significant impact on the earnings of reinsurers, after the industry began 2025 with solid capital levels aided by strong earnings during the previous two years.

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