The impact of the historic Los Angeles-area wildfires is being broadly examined and continually refined, with updates almost daily on insured losses, total economic losses and damages, credit ratings—and lately worrying outlooks for the effect of the fires on insurance rates.
Tens of thousands of properties will be ultimately lost when final counts come in, along with dozens of fatalities. Insured losses range from $8 billion for the two largest fires to $40 billion for all of five. Total economic losses are expected to be well into the hundreds of billions of dollars.
The blazes were driven by hurricane-force winds fanning over bone-dry brush—mercifully, the area has rain in the forecast over the weekend. The numbers from the fires, though likely to continue to change, are worth noting now.
Rates
The losses from the L.A. fires are expected to cause property insurance carriers to raise rates, reduce coverage options, or both, in California and other at-risk areas, according to S&P.
This could be made worse in the “likely event that the California FAIR Plan falls short of funds,” S&P stated.
“California wildfires have had a significant impact on the U.S. property insurance industry over the past three decades, driving up premiums, shaping underwriting practices, and challenging regulatory reform,” S&P stated. “The most recent California wildfires, which started in early January in Los Angeles County, are expected to result in substantial losses for insurers. Post event, we believe property insurance carriers will raise rates and/or reduce coverage options.”
While states like California, Oregon, and Washington are on the lower end of the scale of average annual insurance premiums, S&P expects “the relative position of these fire-prone states will increase sharply in the coming years.”
California homeowner insurance profitability has been on par with the rest of the country over the past decade as measured by the direct simple combined ratio, but DSCR levels for 2025 in the state are expected to be at least as extreme as in 2017 and 2018 (when the state experienced back-to-back years of severe and deadly wildfires), which will contribute to why insurance in California will become more costly, according to S&P.
S&P said anticipated increased insurance premiums will also further strain home affordability in the state, possibly leading to downward pressure on home values in a state already been experiencing muted population growth.
Additionally, rising insurance costs and affordability challenges could eventually weigh on the creditworthiness of the state of California. However, S&P’s current rating outlook for the state is stable.
S&P’s report follows a data from Moody’s out earlier this week that the state’s already noticeable insurance pricing and availability challenges are likely to intensify, with negative implications for property prices, consumer spending and public sector credit quality.
Insured Losses
Preliminary estimates from Moody’s RMS are for insured property losses to be as much as $30 billion from the fires. Catastrophe modeler KCC said on Thursday that insured loss from privately insured and California FAIR plan policies to residential, commercial and industrial properties, and autos from the Palisades and Eaton Fires will be close to $28 billion.
Estimates issued by Verisk earlier this week peg insured losses to property from the Palisades and Eaton fires between $28 billion and $35 billion, which includes losses to the California FAIR Plan. The fires are also expected to put a strain on the FAIR Plan. FAIR Plan doesn’t have enough surplus for this level of loss, Gerald Glombicki, senior director at Fitch Ratings, said in an interview with Insurance Journal. The FAIR plan disclosed reinsurance first kicks in after claims will reach $900 million, and policy exposure of $4.8 billion to structures in the Pacific Palisades and Eaton fire zones, according to Moody’s.
The highest figures issued on insured losses so far include a high of $40 billion put out last week from Keefe Bruyette & Woods analysts. CoreLogic indicated a $35 to $45 billion range of insured losses for two major fires in Los Angeles.
At one point the L.A. area had five significant ongoing wildfires. Total losses from the fires are expected to be massive. AccuWeather revised its preliminary estimate of the total damage and economic loss from the fires to between $250 billion and $275 billion.
Ratings
It’s still unclear what impact the fires will have on the ratings of individual insurers that have a significant presence in California.
State Farm, Farmers Insurance Group, Liberty Mutual Insurance Companies, CSAA Insurance Group, Mercury Insurance Group, Allstate Insurance Group, Auto Club Enterprises, USAA Group and Travelers Group are the state’s biggest homeowners insurers, according to AM Best’s latest data.
Fitch Ratings said in an outlook revision that it expects Mercury General Corp.’s credit profile will withstand the impact of the Eaton and Palisades fires near Los Angeles.
But the ratings agency on Friday also gave a negative outlook for Mercury that reflects “the potential for credit deterioration and financial pressure from a third large catastrophe event or an aggregation of smaller weather-related claims.”
The negative outlook also reflects some uncertainty on the reinsurance program capacity that would be available should another event occur, according to Fitch.
FAIR Plan/Reinsurance
The L.A. fires could consume more than 30% of the aggregate natural catastrophe budgets set for 2025 by Europe’s four largest reinsurers – Swiss Re, Munich Re, Hannover Re and SCOR, according to another Fitch Ratings commentary.
Insured losses to global insurers and reinsurers will materially exceed highs from past wildfire events, the ratings agency said.
While the impact of the fires on European reinsurers’ natural catastrophe budgets will be significant, “the implications for their earnings and capital are not likely to be material,” said Fitch in its commentary titled “LA Fires May Consume 30% of European Reinsurers’ 2025 Catastrophe Budgets,” which it published on Jan. 22.
The FAIR Plan doesn’t have enough surplus for this level of loss, Gerald Glombicki, senior director at Fitch Ratings, said in an interview with Insurance Journal. The FAIR plan disclosed reinsurance first kicks in after claims will reach $900 million, and policy exposure of $4.8 billion to structures in the Pacific Palisades and Eaton fire zones, according to Moody’s.
That means insurers in California will be forced to bolster FAIR Plan’s financial position.
FAIR Plan as of nearly a year ago had $336 billion of property exposure with surplus of just $200 million, and $700 million of cash on hand, according to Victoria Roach, who testified before the California Assembly Insurance Oversight Committee on March 13. (Editor’s note: Current figures for this year cannot be confirmed).
According to FAIR Plan statistics, it has $5.9 billion of exposure to the destructive Palisades fire, its fifth highest wildfire exposure concentration.
Fires
Five fires raged simultaneously around the L.A. area at one point, but two blazes inflicted the most damage. Two new wildfires erupted in Southern California this week, forcing evacuations, however containment on both blazes has rapidly increased.
The Palisades Fire is the largest of the fires, occurring in an area populated with numerous high-value properties. It has burned 23,448 acres and is 68% contained. Aerial imagery overlays show roughly 7,700 structures may have been damaged or destroyed, according to CalFire. The agency confirmed 6,809 residential or commercial structures were destroyed and 972 structures have been damaged. There have been 11 confirmed fatalities.
The Eaton Fire near Altadena has burned 14,021 acres and is 91% contained. According to CalFire, 9,418 residential and commercial structures have been destroyed, and 1,073 structures were damaged. There have been 17 reported fatalities.
Top photo: Eaton Fire near Los Angeles, California in January 2025. Source: CalFire.
Topics
Catastrophe
Natural Disasters
Profit Loss
Wildfire
Louisiana
