European insurers are facing a significant financial hit from the recent California wildfires, with losses estimated to be at least $3.5 billion. The majority of these losses stem from reinsurance claims and are being borne by ten large listed firms in Europe.
Key Losses
- Munich Re and Hannover Re have been hit particularly hard, booking nearly $2 billion in losses combined as they bear the brunt of reinsurance claims related to last month’s devastating wildfires near Los Angeles.
- Swiss Re and Zurich collectively reported $830 million in losses due to reinsuring some US-based insurers against such catastrophes.
Underestimation of Losses
- Analysts had initially estimated that insured losses would reach around $1 billion following the disaster. However, the latest figures indicate a much worse outcome for many European companies involved.
- JPMorgan analysts had predicted that insured damages would amount to a maximum of $20 billion, highlighting a significant underestimation of the situation.
Economic Impact
- The total financial hit far exceeds initial expectations. Overall economic damage due to the wildfires could reach up to $50 billion, although this is still lower than earlier estimates.
- Berenberg analyst Michael Huttner commented on the unusual and significant nature of the losses, noting that certain insurers took bigger hits than others within the same group.
Current Situation
The death toll from the wildfires in Southern California has climbed past 30, with millions displaced and thousands of homes destroyed, leaving behind smoldering ruins.
In late April, Swiss Re increased its estimate for insured losses caused solely by the LA fires to $40 billion, making them the deadliest and most expensive disasters in the state’s history. This disaster follows closely behind the Camp Fire in Paradise, CA (November 2018) and the Black Summer in Australia (2019-2020), both of which resulted in similar but slightly less severe losses.
Conclusion
Investors should note that if Swiss Re’s forecast holds true, the majority of the burden will fall on European companies, particularly Munich Re, Hannover Re, and Zurich. Additionally, three French insurers and Tokio Marine from Japan have disclosed significant losses, further exceeding initial predictions. The widespread destruction has irrevocably altered communities and will require resilience and renewal to rebuild stronger than before.
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