Jamie Spencer
Insurers Face Heavy Losses as California Wildfires Drive Stock Selloff
Shares of major insurance companies tumbled Friday as devastating wildfires in Los Angeles escalated, prompting concerns about record-breaking insured losses. Allstate, Chubb, and Travelers were among the hardest hit, with analysts warning that the financial impact of the fires could surpass previous disasters.
Significant stock declines for major insurers
The stocks of several insurers heavily exposed to the California homeowners’ market fell sharply:
- Allstate: Dropped 6%, the biggest loser among insurers.
- Chubb: Declined 3.28%.
- Travelers: Fell 3.98%.
- Progressive: Dipped 1.46%.
- AIG: Declined over 1%.
According to JPMorgan, Allstate, Chubb, and Travelers are the most exposed to potential insured losses from the wildfires. Chubb, in particular, faces heightened risks due to its focus on high-net-worth clients in the affected region.
Potential for record-breaking losses
The California wildfires, led by the Palisades Fire, have already caused significant destruction:
- Palisades Fire: Burned over 17,000 acres and destroyed more than 1,000 structures.
- Estimated insured losses: Could exceed $20 billion, surpassing the $12.5 billion from the 2018 Camp Fire, previously the costliest wildfire in U.S. history.
Moody’s Ratings expects insured losses to run into the billions, driven by the high value of homes and businesses in affluent areas like Pacific Palisades, where the median home price exceeds $3 million.
Reinsurance concerns
Reinsurers Arch Capital Group and RenaissanceRe Holdings also experienced declines of 2% and 1.5%, respectively. Rising loss estimates increase the likelihood of reinsurance attachments being breached, further compounding financial risks for insurers.
Calls for accountability
Insurance companies have asked Southern California Edison to preserve evidence related to the wildfires, signaling potential investigations into liability and causes of the disaster. Regulatory filings indicate that insurers are preparing for significant claims stemming from the devastation.
Conclusion
The escalating California wildfires present a critical challenge for insurers, with potential losses threatening to surpass historical records. As the fires continue to spread, the financial implications for insurance companies, reinsurers, and the broader market remain uncertain. The situation underscores the mounting risks faced by insurers in regions prone to natural disasters.
