U.S. insurance stocks slid on Friday as analysts estimated insured losses from the wildfires menacing Los Angeles could reach as high as $20 billion, potentially making it the costliest disaster in California’s history.
A pause in the fierce winds that super-charged the ring of wildfires that devastated Los Angeles this week helped crews make progress in bringing the infernos under control but forecasters said strong gusts could return over the weekend.
Analysts are evaluating the financial impact of the disaster, with J.P.Morgan doubling its forecast of insured losses to over $20 billion. Wells Fargo also expects similar insured losses and said the total economic hit from the disaster could be well above $60 billion.
To help provide critical stability amid the devastation caused by the fires, California Insurance Commissioner Ricardo Lara invoked moratorium powers to suspend all policy non-renewals and cancellations from insurance companies for one year.
Lara also urged insurance companies to halt any pending non-renewals and cancellations issued to homeowners before the fires began.
“My primary concern at this very moment is to ensure that wildfire survivors receive the insurance benefits to which they are entitled to as soon as possible,” Lara said at a press briefing.
The Pacific Palisades area is one of the most expensive neighborhoods in the U.S., home to Hollywood A-Listers and multimillion dollar mansions. Ahead of this week’s disaster, its insurance costs were among the most affordable in the country, according to a Reuters analysis.
But that is likely to change after the scale of losses anticipated in the wildfires now ringing Los Angeles, as well as regulatory changes enacted late last year.
“While leading U.S. property insurers are in good financial condition, the California property insurance market has been challenging… leading many insurers to re-think their product offering, including an outright exit from the market,” Morningstar DBRS wrote in a client note.
The S&P Insurance Select Industry index was last down 3.2% on Friday.
MOUNTING LOSSES
The fires, engulfing iconic Los Angeles neighborhoods and tearing through the Hollywood Hills, have so far killed 10 people and destroyed nearly 10,000 structures.
Private forecaster AccuWeather estimated the damage and economic loss at $135 billion to $150 billion, portending an arduous recovery and a surge in homeowners’ insurance costs.
“It will take weeks or months to determine the magnitude of the insured damages, but the Los Angeles wildfires are likely among the most costly wildfires in the state’s history,” Moody’s Ratings said in a note.
Raymond James sees insured losses in the range of $11 billion to $17.5 billion and said the disaster could become the costliest wildfire in United States history. Analysts at Morningstar DBRS pegged insured losses in excess of $8 billion, based on preliminary estimates.
“The largest U.S. primary insurers have meaningfully reduced exposure to California due to costly and unquantifiable wildfire risk, combined with the state’s strict pricing controls,” analysts at Jefferies wrote in a note.
Catastrophe losses have intensified over the past few years and have significantly hurt profits due to substantial payouts tied to widespread property damage, business interruptions and liability claims.
Severe and frequent natural disasters have hastened the industry’s retreat from high-risk areas, particularly Florida and California.
Among individual stocks, sector bellwether Travelers fell 4% in afternoon trading. Los Angeles-based multi-line insurer Mercury General slumped 22%, while Allstate dropped 7%.
Chubb and AIG dropped 4% and 1.3%, respectively.
Mercury General said on Friday it will take some time before the company has an estimate of the total losses. As the wildfires continue to burn, it expects the losses to exceed its reinsurance retention level of $150 million.
European insurers, including Beazley, Lancashire and Hiscox, also closed between 3% and 5.7% lower.
(Reporting by Manya Saini in Bengaluru; Additional reporting by Susan Heavy and Sruthi Shankar; Editing by Krishna Chandra Eluri)
