The wildfires in Los Angeles are set to become the costliest in U.S. history, with analysts currently predicting insured losses of up to $30 billion, according to ABC News, citing reports from Wells Fargo & Co. and Goldman Sachs Group Inc. These new estimates surpass JPMorgan Chase & Co.’s initial estimate of $20 billion in insured losses.
A Fitch Ratings report also put estimated insured losses in the $10 billion to $30 billion range. "The location of the fires within higher valued property neighborhoods will exacerbate losses for insurers focused on the high net worth (HNW) market and excess and surplus (E&S) lines carriers due to more specialized underwriting and valuation requirements," says Fitch. "Substantial losses will also be incurred by California’s insurer of last resort, The Fair Access to Insurance Requirements (FAIR) Plan, as many insurers have reduced policies in the market in recent years due to higher losses and regulatory pricing restrictions.
"FAIR Plan policy count increased by 35% in the 12 months ending Sept. 30, 2024 to over 450,000."
While Fitch notes that insured losses will likely materially exceed highs from past wildfire events, P&C (re)insurer ratings are not expected to be affected. "Insured losses should remain within ratings sensitivities for affected issuers, given ample capital levels, diversified risk exposure and insurers’ ability to increase premium rates."
Bloomberg reports that a Keefe Bruyette & Woods estimate puts expected insured losses as high as $40 billion.
Current Status of the Flames
According to the California Department of Forestry and Fire Protection (CAL FIRE), as of Jan. 15, the Palisades fire is 19% contained, the Eaton fire is 45% contained, the Hurst Fire is 97% contained, and the Auto Fire is 50% contained.
So far, 40,644 acres have been burned, at least 12,300 structures have been destroyed, and 23 fatalities have been reported. Meanwhile, “about 92,000 people remain under mandatory evacuation orders and another 89,000 are under evacuation warnings,” according to ABC News, as firefighters combat the flames in the air and on the ground.
Southern California, from San Diego to northern Los Angeles into Ventura County, remains at elevated fire risk. The weather service issued a rare warning Tuesday, Jan. 14, stating that “the winds, combined with severely dry conditions, have created a ‘particularly dangerous situation,’ meaning that any new fire could explode in size."
Facing Challenges
According to AP News, nine people have been charged with looting, including a group of people who stole an Emmy Award from an evacuated house. Meanwhile, others stole over $200,000 worth of items from mansions in an Los Angeles neighborhood. “Police have made roughly 50 arrests for looting, flying drones that could illegally interfere with firefighting aircraft, and violating curfew.” Police have also come across people suspected of arson, with three arrested on suspicion of starting small fires, all of which were immediately extinguished.
Firefighters in some areas have run out of water, complicating efforts to tame the fires. CBS News reports that the Santa Ynez Reservoir, a 117-million-gallon water resource near the Palisades, “was under renovation and empty when fires tore through the Los Angeles neighborhood last week and firefighters quickly depleted available resources.” California Gov. Gavin Newsom intends to launch a state investigation into the “loss of water pressure and availability of water from the reservoir.” Three 1-million-gallon water tanks in the Palisades ran dry early into the flames’ eruption due to extreme demand, CBS notes.
Economic Loss Estimates
Economic losses from the blazes are estimated to land between $250 billion and $275 billion, according to AccuWeather. “To put the magnitude of loss into context, this latest damage and economic loss estimate surpasses the numbers for the entire 2020 wildfire season,” AccuWeather explains. “This update accounts for new and additional information, including the damage and destruction of thousands of homes and businesses, damage to utilities and infrastructure, the financial impact of evacuation orders, the long-term cost of rebuilding or relocation for people in densely populated areas whose homes were destroyed, anticipated cleanup and recovery costs, emergency shelter expenses, as well as immediate and long-term health care costs for people who were injured or exposed to unhealthy air quality from wildfire smoke,” as well as lost wages and housing displacement.