European reinsurance companies are bracing for significant financial losses as California’s ongoing wildfires continue to wreak havoc, with damage estimates ranging from €245.10 billion to €269.58 billion as reported by Euronews.
The fires have already claimed 24 lives, displaced thousands, and destroyed thousands of acres of land and infrastructure in Palisades, Eaton, and Hurst. Analysts predict that claims from the disaster could cost European reinsurers approximately €0.98 billion, further illustrating the global ripple effects of climate-related catastrophes.
Although significant, these losses remain within pre-budgeted thresholds for major events, according to Berenberg analysts. However, market reactions have been swift, with share prices for these companies dropping between 1.37% and 3.06% earlier this week.
California’s insurance market has been under strain for years, a crisis that began with the 2018 Camp Fire, which resulted in severe losses for insurers and prompted some, such as State Farm and Allstate, to stop issuing or renewing property insurance policies in the state.
Rising catastrophe risks have left 10.5% of California homeowners uninsured, according to LendingTree. This translates to approximately 806,600 homeowners, many of whom reside in high-risk areas like Kings, Lake, and Humboldt counties.
Despite the challenges, analysts suggest that reinsurers may be better prepared to absorb the losses compared to the 2018 wildfires. Most of the current damage is concentrated in residential areas, where reinsurers have less exposure. In addition, higher reinsurance attachment points and the FAIR Plan system, which pools risks among insurers, offer some financial insulation.
As fires continue to burn across California, the long-term implications for the global insurance sector remain uncertain.