Wildfires expected to reverse reinsurance price decline, CEOs say

The California wildfire losses will reverse the decline in property catastrophe reinsurance rates at the mid-year renewals and increase demand for cover, senior industry executives have predicted. 

Everest Group chief executive, Jim Williamson, said the scale of the losses, which could surpass $40bn, will have a "positive impact" on pricing.

Jim Williamson, president and chief executive, Everest Group

Speaking to analysts, Williamson said the 5% to 15% fall in loss free pricing at the recent January 1 renewals is now "probably ameliorated", adding there is "a lot of increased demand in the market".

"There's a terrific opportunity for us to continue to be very, very selective in the deals we're writing, and to get terrific economics," he added.

Everest expects to book $350m to $450m of pre-tax catastrophe losses tied to the California wildfires. This is based on an industry insured loss ranging from $35bn to $45bn.

"This is a major event that certainly would, you would expect it to have a positive impact on prices," Williamson said.

RenaissanceRe chief executive, Kevin O’Donnell, said the California wildfire losses are at a "scale where we would expect them to affect the supply and demand for reinsurance". 

"The first quarter of 2025 will be the third consecutive quarter of elevated catastrophe losses. Most of our US property catastrophe programmes are loss-impacted. This will create increased demand for our products," he told analysts, following the publication of the firm's results. RenaissanceRe has estimated a $750m net losses from the wildfires, based on a 1.5% share of a $50bn industry loss.

Kevin O’Donnell, president and chief executive, RenaissanceRe Business Wire

O’Donnell continued: "We have the capital, and we have the appetite to continue providing the protection that our clients and states like California clearly need – however, property catastrophe rates need to remain firm or even increase."

The chief executive also said the scale of the event will lead to changes in wildfire models. "This is a tail event for the wildfire peril, both in terms of absolute dollar loss, but especially with respect to return period," O’Donnell explained.

"While our models performed well in our assessment of return period, the loss of this magnitude implies that both our models, as well as the vendor models, will need to steepen the curve in the tail to better reflect the higher frequency of severe events," he added.

Brokers struck a cautious note on the impact. Dean Klisura, chief executive of Guy Carpenter, said the impact of the wildfires on the reinsurance market "is uncertain at this time and will certainly depend on the ultimate magnitude of the reinsurance loss".

He continued: "But I would say at this stage, the risk-adjusted rate reductions that we witnessed in January 1 could certainly be tempered moving forward as we go into the April 1 renewal season."

Dean Klisura, chief executive, Guy Carpenter Guy Carpenter

AM Best said this week it expects reinsurers' exposure to the wildfires to be "significant" but "manageable".  It noted any broader impact on the property catastrophe reinsurance market "remains to be seen". 

Major insurers have begun to disclose their loss estimates from the southern California wildfires.

Last week, insurance giant Chubb said it estimates pre-tax losses from the California wildfires at $1.5bn. Nationwide carrier Farmers Insurance is reported to have estimated losses between $1.6bn and $2.15bn.

Allstate expects a $1.1bn net loss from the wildfires, while Markel said it expects to post a $90m to $130m loss, with its international fine art and specie book taking the brunt of the loss.

And reinsurance giant Hannover Re said it expects its net losses from the Los Angeles wildfires will range between €500m ($517.9m) and €700m, based on an industry loss of $30bn to $40bn.

Insured loss estimates for the Palisades and Eaton fires that broke out on January 7 vary widely.

Karen Clark & Company has forecast losses of around $28bn, while Verisk said losses will be between $28bn and $35bn. Analysts at KBW produced a figure of between $25bn and $40bn, while CoreLogic predicts losses will be between $35bn and $45bn.

Numerous factors have contributed to the size of the market loss, including the relatively high values of the properties located in the impacted areas, the impact of elevated demand surge on replacement cost values, the level of additional living expense and the prevalence of smoke damage across a wide area.

"These factors can cause the estimated $50bn insured market loss to shift up or down as the market loss develops, our negative impact should vary accordingly," O’Donnell said.

He added the scale of the loss has demonstrated the value of reinsurance. "Two years ago, the reinsurance market underwent a step change in pricing and terms and conditions," he said. 

"Since the step change, there has been much discussion regarding the relevance of reinsurance. I believe the California wildfires once again demonstrate the continued, if not growing, value of the protection we provide our customers."