Euler ILS Partners raises LA wildfire industry loss estimate to $23bn-$33bn

Euler ILS Partners, the specialist insurance-linked securities (ILS) investment manager, has issued an updated event report for the California wildfires, saying it believes the insurance industry loss may sit between $23 billion to $33 billion.

In January, the investment manager released its first event report from the wildfires, where analysts initially estimated that insured losses from the event will sit between $15 billion and $17 billion, so this has now seen a sharp increase since then.

As we’ve been reporting, official reports state that over 17,000 structures have been damaged or destroyed by the wildfires, and the first estimates of insurance industry losses from catastrophe risk modellers, so far have a mid-point of $31.125 billion.

The highest estimate so far comes from CoreLogic at $35 billion to $45 billion. While Verisk pegged insured losses from the wildfires at between $28 billion and $35 billion, and Karen Clark & Company (KCC) revealed that it expects the hit to the industry will sit close to $28 billion.

We also previously reported that initial loss estimates from the Los Angeles wildfires from reinsurance firm RenaissanceRe and global re/insurer Chubb may raise concerns across the industry, as RenRe based its estimate on a $50 billion industry loss event, while Chubb also seems to be working from a relatively high industry figure, too.

“We currently estimate the insured losses for relevant property and automobile insurance to be between USD 23 billion to USD 33 billion. This estimated range has been calculated using the number of policies affected and insured values in the region as well as detailed policy features for homeowner and commercial policies,” Euler ILS Partners noted.

In addition to the firm’s loss estimate, analysts also highlighted that there can be further losses which are typically not subject business to the sectors covered in the catastrophe bond or ILS market, such as marine, art, and other lines of business.

Analysts also noted that so far they have received insured loss estimates from insurers which make up roughly 40% of the insurance market in Southern California.

Euler ILS Partners explained that using those estimates and grossing them up to 100% would provide an estimated $27.5 billion total market loss which is in good agreement with the investment manager’s midpoint market loss estimate of $28 billion.

“Hence, both approaches – the detailed policy terms and number of affected buildings and cars as well as aggregating and grossing up for 100% market share – lead to very similar insured loss figures, which makes us confidence of the robustness of the estimates,” the ILS investment manager explained.

Concluding: “Of the estimated USD 28 billion market loss we estimate using reinsurance structures that about USD 7 billion will be in the retentions of insurers and the remaining part will need to be absorbed by reinsurers and maybe ultimately USD 1 billion to USD 2 billion by the ILS market.”

Read all of our coverage related to the Los Angeles, California wildfires here.