We use cookies to understand how you use our site and to improve your experience.
This includes personalizing content and advertising.
By pressing "Accept All" or closing out of this banner, you consent to the use of all cookies and similar technologies and the sharing of information they collect with third parties.
You can reject marketing cookies by pressing "Deny Optional," but we still use essential, performance, and functional cookies.
In addition, whether you "Accept All," Deny Optional," click the X or otherwise continue to use the site, you accept our Privacy Policy and Terms of Service, revised from time to time.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Analysis: California Wildfires Insured Losses Will Near $10 Billion
Read MoreHide Full Article
Investors are closely monitoring insurance stocks as losses from the devastating California wildfires that erupted on Jan. 7 continue to rise. The fires have ravaged neighborhoods in Pacific Palisades, Altadena and Pasadena, destroying thousands of structures and displacing residents.Tragically, lives have also been lost. Wildfire risk is a major factor in the state's struggle to keep homeowner's insurance coverage affordable.
Fueled by strong, dry Santa Ana winds, the wildfires intensified in Southern California's already warm and dry conditions, which have seen minimal rainfall since early May. Private forecaster AccuWeather estimates that the total damage and economic impact of these wildfires, now among the worst in the state’s history, will range within $52-$57 billion.
Meanwhile, J.P. Morgan projects insured losses to approach $10 billion. This estimate, which remains preliminary, is intended to help investors gauge potential financial effects. The majority of these losses are expected to come from homeowners' insurance, with commercial property insurance playing a smaller role.
Primary Insurers Most Vulnerable to LA Fires
J.P. Morgan’s analysis highlighted that primary insurers, including The Allstate Corporation (ALL - Free Report) , The Travelers Companies, Inc. (TRV - Free Report) and Chubb Limited (CB - Free Report) , are more vulnerable to the losses than reinsurers like Arch Capital Group Ltd. (ACGL - Free Report) and RenaissanceRe. This is largely because reinsurance attachment points have risen since 2023, meaning primary insurers will bear a larger share of the costs.
Allstate, with approximately a 6% market share in California, faces significant exposure. Travelers and Chubb hold comparable market shares in the state. Currently, Allstate carries a Zacks Rank #3 (Hold). While its latest quarterly results showed strength, they were partially overshadowed by higher catastrophe losses, increased insurance claims and expenses, and weaker real estate investment performance. Similarly, rising catastrophe losses impacted the third-quarter profits of both Travelers and Chubb. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
In May 2024, Travelers increased its insurance rates in California by an average of 15%, attributing the hike to wildfire risks, inflation and escalating reinsurance costs. According to the Department of Forestry and Fire Protection, seven of California’s 20 most destructive wildfires have occurred in the last five years, underscoring the escalating risk in the region.
As such, the demand for various types of insurance products is expected to increase. This trend will likely push insurers to innovate and create more efficient products to meet evolving client needs. Despite the heavy losses, J.P. Morgan characterized the financial impact of the ongoing Los Angeles fires on the insurance industry as “high but manageable.”
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
Analysis: California Wildfires Insured Losses Will Near $10 Billion
Investors are closely monitoring insurance stocks as losses from the devastating California wildfires that erupted on Jan. 7 continue to rise. The fires have ravaged neighborhoods in Pacific Palisades, Altadena and Pasadena, destroying thousands of structures and displacing residents.Tragically, lives have also been lost. Wildfire risk is a major factor in the state's struggle to keep homeowner's insurance coverage affordable.
Fueled by strong, dry Santa Ana winds, the wildfires intensified in Southern California's already warm and dry conditions, which have seen minimal rainfall since early May. Private forecaster AccuWeather estimates that the total damage and economic impact of these wildfires, now among the worst in the state’s history, will range within $52-$57 billion.
Meanwhile, J.P. Morgan projects insured losses to approach $10 billion. This estimate, which remains preliminary, is intended to help investors gauge potential financial effects. The majority of these losses are expected to come from homeowners' insurance, with commercial property insurance playing a smaller role.
Primary Insurers Most Vulnerable to LA Fires
J.P. Morgan’s analysis highlighted that primary insurers, including The Allstate Corporation (ALL - Free Report) , The Travelers Companies, Inc. (TRV - Free Report) and Chubb Limited (CB - Free Report) , are more vulnerable to the losses than reinsurers like Arch Capital Group Ltd. (ACGL - Free Report) and RenaissanceRe. This is largely because reinsurance attachment points have risen since 2023, meaning primary insurers will bear a larger share of the costs.
Allstate, with approximately a 6% market share in California, faces significant exposure. Travelers and Chubb hold comparable market shares in the state. Currently, Allstate carries a Zacks Rank #3 (Hold). While its latest quarterly results showed strength, they were partially overshadowed by higher catastrophe losses, increased insurance claims and expenses, and weaker real estate investment performance. Similarly, rising catastrophe losses impacted the third-quarter profits of both Travelers and Chubb. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
In May 2024, Travelers increased its insurance rates in California by an average of 15%, attributing the hike to wildfire risks, inflation and escalating reinsurance costs. According to the Department of Forestry and Fire Protection, seven of California’s 20 most destructive wildfires have occurred in the last five years, underscoring the escalating risk in the region.
As such, the demand for various types of insurance products is expected to increase. This trend will likely push insurers to innovate and create more efficient products to meet evolving client needs. Despite the heavy losses, J.P. Morgan characterized the financial impact of the ongoing Los Angeles fires on the insurance industry as “high but manageable.”