Investing.com -- Barclays (LON:BARC) released an analysis of the potential financial impact of the California wildfires on the insurance industry, projecting industry-insured losses to range between $17 billion and $30 billion.
According to the bank, this is anticipated to be the largest wildfire event on record, with an estimated 10,000 to 25,000 structures potentially destroyed.
For U.S. (Re)insurance equities, Barclays foresees a manageable impact at the lower end of the loss estimates. The most affected companies are expected to be primary insurers such as Chubb (NYSE:CB), Travelers (NYSE:TRV), Allstate (NYSE:ALL), Hartford Financial (NYSE:HIG), Fidelis Insurance Holdings (NYSE:FIHL), and American International Group (AIG), with an average impact of around 1% of their book value per share (BVPS).
If losses reach the higher end of the range, reinsurers like Everest Re Group (NYSE:EG), RenaissanceRe (NYSE:RNR), Arch Capital Group (NASDAQ:ACGL), and Hamilton Insurance Group (NYSE:HG) could face more significant impacts, up to 3-4% of BVPS.
In the European (Re)insurance sector, the analysis suggests that a substantial loss from the wildfires could alter market dynamics ahead of the June-July renewals, despite the expectation of a high-teens reinsurance return on equity (ROE) in the first half of 2025.
However, this wildfire event is “unlikely to change the downward direction of prices,” Barclays strategists said.
From a credit standpoint, Barclays assesses the wildfires as a manageable risk for the financial strength of US property and casualty (P&C) insurers, citing the industry's robust capitalization of over $1.1 trillion in regulatory capital.
Most insurers offering homeowners insurance in California are geographically diversified, which helps mitigate loss volatility. Furthermore, the trend of insurers withdrawing from the California homeowners market due to inadequate pricing may reduce their share of industry losses.
Both Moody's (NYSE:MCO) and S&P commented on the situation, with S&P not expecting the wildfires to trigger rating changes and Moody's highlighting that recent underwriting actions and tailored coverage terms should mitigate insured exposure to wildfire losses.
European reinsurers, on the other hand, might see a more pronounced effect on their capital positions due to the intensity of the wildfires, the high value of insured assets, and the prevalence of wildfire insurance.
“Primary insurers usually reinsure themselves for these types of risk,” Barclays notes.
Among these companies, the firm anticipates that Scor (EPA:SCOR) could be the most impacted, given its current weak Solvency II ratio.