Insurance companies are bracing for losses of up to $20 billion from California wildfires - ORSOLTECH

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Insurers are bracing for losses of up to $20 billion from Los Angeles wildfires after the blazes swept through some of California's most exclusive neighborhoods, according to preliminary estimates from analysts.

JPMorgan analysts on Thursday doubled their forecast for insured losses from the $10 billion they estimated a day earlier, citing limited progress in containment and the spread of the disease to neighboring regions.

“Expectations of economic losses from the fires have doubled since yesterday to approach $50 billion, and we estimate that insured losses from the event could exceed $20 billion (and even more if the fires are not brought under control),” JPMorgan wrote in its report. Note to customers.

Credit rating agency Moody's said it “expects insurance losses to reach billions of dollars given the high value of homes and businesses in the affected areas,” while its competitor Morningstar DBRS said preliminary estimates indicate total insured losses at more than $8 billion.

More than 100,000 residents were ordered to evacuate, with about 15,000 buildings at risk, compared to 13,000 buildings on Wednesday.

Specialty insurers focusing on the most expensive homes faced higher payouts, and Allstate, Travelers and Chubb were among the most at-risk insurers in the state, JPMorgan said. Chubb focuses specifically on high-value properties.

Allstate and State Farm are among the insurers that recently stopped selling new home insurance policies in the state, blaming regulatory caps for rising rates that have made covering losses increasingly difficult. Insurance companies have also been dropping customers in areas most at risk.

Last year, State Farm Announce Insurance policies for 72,000 homes and apartments in the state will not be renewed, including 69 percent of insurance plans in the upscale Pacific Palisades area ravaged by recent wildfires.

This has led many homeowners to turn to the Fair Plan backed by the state of California, as well as less regulated home insurance policies, which insurers call “nonadmissible.”

The Fair Plan, which at the end of September had less than $6 billion worth of wildfires in the Pacific Palisades region alone, provides coverage of up to $3 million for the property.

Insurers and analysts said the damages could rival those from the most devastating fires in recent years, including the 2018 Camp Fire in Butte County, California, which led to $10 billion in insured losses.

The median property price in the Pacific Palisades area — where much of the damage from recent wildfires is concentrated — is much higher than in Butte County, at more than $3 million compared to less than $500,000.

Climate change has intensified wildfire seasons in California. New development extending into fire-prone areas and wildland areas surrounding major cities has also fueled the fires Insurance losses rise, along with rising home values.

Morningstar DBRS said the fires “reinforce the need for adequate home insurance rate increases in California” as well as prevention and mitigation initiatives.

But the rating agency noted that affordability of property insurance in California “will likely remain a challenge… with many property owners choosing to remain uninsured or underinsured due to high costs.”

The cost of property catastrophe reinsurance, or insurance for insurers, has also been affected rose sharply.

JPMorgan said RenaissanceRe and Arch Capital were among reinsurers exposed to the wildfires, with rising loss estimates making it more likely they would have to share payouts.