Hawaii wildfire insured loss estimates range $1bn to ~$3bn

Insurance and reinsurance market loss estimates for the devastating wildfires in Hawaii are currently ranging from $1 billion to around $3 billion, but it remains very early days in identifying the true costs of the devastating catastrophe Maui has faced.

As we reported yesterday, the rebuilding cost of the wildfire in Hawaii that burned the historic town of Lahaina has been estimated at $5.52 billion, with 2,207 structures reported to have been destroyed.

At the same time, catastrophe risk modelling specialist Karen Clark & Company (KCC) said that, “The total insured loss is expected to be the second largest in Hawaii history, second only to Hurricane Iniki based on today’s property value.”

Hurricane Iniki, that struck Hawaii in 1992, is estimated to have caused around $3.1 billion in damages, which is estimated to be equivalent to $6 billion as of 2022 values and currency, and a $1.6 billion insurance market loss at the time of the event which perhaps extrapolates out to roughly $3 billion at today’s values.

KCC had also reported there were around 3,500 buildings within the fire perimeter in Lahaina.

A number of reports have since come out from analysts that suggest an early insurance industry loss estimate in a range from $1 billion to as much as $3 billion, which aligns with the above.

RBC analysts opted for the upper-end at close to $3 billion, while Moody’s said it expects the event will result in more than $1 billion of insurance market losses.

Moody’s said that the fires will “primarily affect P&C insurers with significant homeowners and commercial property market share in Lahaina.”

While also noting that, “Some reinsurers could incur a share of the wildfire losses through catastrophe policies as well as quota share and per risk policies.”

Moody’s also noted that, ” Homeowners and commercial property insurers will likely reassess their exposures, pricing and reinsurance arrangements related to wildfires in Hawaii.”

Reinsurance claims appear assured, with Hallmark Financial seen to suggest yesterday that it expects that its reinsurance layers will kick-in, as it explained its maximum exposure to the Maui wildfire would be capped by this protection.

At an industry loss of up to $3 billion, impacts to the insurance-linked securities (ILS) market would be largely constrained to aggregate erosion in the catastrophe bond market, as well as for certain other aggregate protections where ILS funds have participated on a collateralized reinsurance basis.

Direct losses appear likely to be very minimal for the ILS market, at this time.

However, there is significant uncertainty over the eventual insurance market loss from the wildfires, with claims likely to come from smoke damage, burned vehicles, additional living expenses, and buildings contents as well, which could push the ultimate toll a bit higher, it is expected.

Given the extent of the damage experienced by Maui, it seems highly likely the loss will be in the upper-half of the current ranges being discussed and industry sources we’ve spoken with concur so far.

Clarity over the cost to the insurance and reinsurance industry from this terrible fire event will take time, but the market’s support for the rebuilding of Lahaina is going to be critical.