Wildfires around Los Angeles are expected to cost European insurance giants up to 1 billion euros this year. Millions of people have been displaced by wildfires, thousands of homes and buildings have been destroyed, and at least five people have been reported dead. While total economic losses from the disaster are expected to be around $50 billion, JPMorgan believes insured losses from wildfires could be around $20 billion, double the $10 billion they forecast earlier this month. Analysts at German investment bank Berenberg said at least seven European listed reinsurers are expected to cover about 1 billion euros ($1.02 billion) in wildfire losses. Their estimates exclude UK-based reinsurers, which could increase the total amount of losses for European companies. Reinsurers offer policies to major insurance providers, such as Chubb, which are located in California and deal directly with local customers. Reinsurance policies typically only come into effect after the primary insurance provider absorbs losses of approximately €400 million. Berenberg analyst Michael Huttner told CNBC: “If I look at European insurers and exclude the London market… you’re probably looking at losses of around €1 billion.” Huttner Currently rated the best among 9,300 Wall Street analysts by TipRanks. Although the total damage caused by the disaster is large, insurance companies are expected to bear only a small portion. Huttner added that the numbers were also unlikely to affect profits if the fire was quickly contained. For example, the largest net loss among European companies is estimated to be Munich Re, at €220 million. However, the reinsurer has set aside up to 2.8 billion euros this year to deal with potential losses from natural disasters. Analysts said that despite such incidents, Munich Re still expects profits to exceed 6 billion euros in 2025. Swiss Re, SCOR and Hannover Re will also pay hundreds of millions of dollars in compensation due to wildfires. However, analysts warned it was still early and the scale and frequency of natural disasters during the rest of the year could alter insurers’ profit expectations. Allianz, AXA and Zurich Insurance Group, which owns Farmers, a major California insurance provider, also face hundreds of millions of dollars in losses. The European insurance giant’s total losses may be as high as 1 billion euros. JPMorgan analysts also estimate that Japanese insurance companies Tokio Marine and SOMPO may also be affected, suffering losses of about US$63 million. Despite the scale of damage in California, insurance companies’ losses were far lower than in past wildfires. In 2018, California wildfires caused approximately US$16 billion in losses to the entire industry. In that incident, Munich Re took the largest loss, amounting to €500 million. The experience of that disaster and others has led to the deductible (or excess) per incident rising from €100 million to €400 million today. Losses among U.S. and European insurance companies have also been partially reduced by the launch of the FAIR program, a pooled fund established with contributions from multiple California insurance companies. The system is expected to absorb most of the losses first, before private insurance companies begin making payments.
Los Angeles fire could cost European insurance companies billions of euros in losses | Real Time Headlines
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